Lenders Add Bigger Fannie, Freddie Fee – Thanks to Payroll Tax Cut

Lenders have started adding an increase in fees on mortgages backed by Fannie Mae, Freddie Mac and the Federal Housing Administration to new loans – a hike that will pay for the two-month extension of the payroll tax cut.
The fee increase of 0.1 of a percentage point is to be added to all loans that Fannie and Freddie buy from April 1 to Oct. 1, 2021.
But lenders are already adding the increased fee to loan price structuring since it can take months to close a loan and deliver it to the two mortgage-financing companies taken over by the U.S. government three years ago.
The increase in the mortgage fee is to pay for the roughly $33 billion package the Senate approved last month to extend a 2 percentage point payroll tax cut for another two months. About 160 million people benefit from that tax cut.
But the mortgage fee increase is good for the life of new mortgages and refinancing – about 90 percent of U.S. mortgages are financed or backed by the government-sponsored companies. Existing mortgages are not affected.
“Think of it as a back-door tax increase,” writes Peter G. Miller, a syndicated real estate writer and operator of OurBroker.com. “While the public was watching the payroll debate in Washington, Congress was actually increasing the cost to finance or refinance a home.”
The Fannie/Freddie fee would rise about 0.1 percent to an average of 0.3 percentage point. It would amount to about $15 a month more on a  $200,000 mortgage ­– that’s $180 a year.
Congress has also directed the FHA to increase its annual mortgage insurance premium by .10 percent – from 1.15 percent to 1.25 percent for most borrowers.
Homeowners would have the fee increases worked into their mortgage.
The mortgage providers would then send that additional revenue to the U.S. Treasury, which already extends an open credit line to Fannie and Freddie to cover quarterly losses. That bailout tab is expected to reach $200 billion this year.

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