Payroll Tax Extension Proposal Could Increase Cost of FHA Mortgages

Legislation proposed to extend payroll tax cuts for two months could cause some Federal Housing Administration mortgage fees to rise, essentially leading to an increase in the cost of those mortgage loans for homeowners. The House is scheduled to vote on the legislation Monday night.

The legislation has been hotly contested as a means to extend payroll tax cuts for two months.

Under the proposed legislation, FHA annual mortgage insurance premiums to could rise by 10 basis points, according to the bill. Guarantee fees, or “G fees” for Fannie Mae and Freddie Mac loans would also rise.

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Mortgage Bankers Association President and CEO David Stevens, speaking on behalf of the MBA, urged the House to vote down the payroll tax extension.

“The idea that you should pass a ten year tax increase for two months of payroll tax relief is appalling. Fannie and Freddie’s guarantee fees are supposed to be used to help offset the risk inherent in providing mortgages, and any increases should be used for that purpose,” he said. “Siphoning off a portion of those fees into the general government coffers may be politically expedient, but it is far from sound policy.”

House speaker John Boehner (R-Ohio) told NBC’s “Meet the Press” that the two-month renewal would create additional uncertainty for workers and employers and that Congress should delay its holiday break to ensure that a one-year extension was passed.

“It’s pretty clear that I and our members oppose the Senate bill. It’s only for two months,” he said.

Written by Elizabeth Ecker

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