Borrowers Beware - Loan Fees Set to Rise in Early 2012

By Doug Huggins

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Unpleasant news for future Mortgage Loan Borrowers in 2012 - the cost to obtain a new is going UP!

Late this December our Congress passed a short-term extension of the payroll tax cut. While many folks cheered this extension (even if it was only for two-months), they way Congress decided to finance the tax cut was with a 10 basis point hike in Fannie Mae and Freddie Mac guarantee fees. In other words, Congress just increased the fees the government charges those agencies for doing loans. Those fees will be charged by those agencies to mortgage companies on a per-loan basis. Those increased fees are expected to pass the cost onto homebuyers and mortgagors seeking to refinance.

The payroll tax bill (H.R. 3630) signed by President Obama is expected to generate $35 billion over 10 years. The money collected will go to the U.S. Treasury Department and will not repay the government for bailing out Fannie Mae or Freddie Mac.

Mortgage industry officials are dismayed by Congress' decision to use Fannie and Freddie as a piggybank to fund tax breaks and other government programs.

“We have nothing against increasing fees to offset credit risk,” said David Stevens, president and chief executive of the Mortgage Bankers Association.

But it becomes “problematic,” he said, when legislators are setting premiums and diverting the funds for other purposes.

“Fees should be used to explicitly offset the risks of these portfolios, especially since have we have spent $170 billion so far just to keep Freddie and Fannie operating,” Stevens told NMN.

While the Senate was crafting the bill (H.R. 3630) they were heavily lobbied by Mortgage Insurance Companies to requires a corresponding 10 bp hike in Federal Housing Administration (FHA) annual premiums for 10 years. The mortgage insurance companies claimed that without the increase in government guaranteed loans as well, FHA loans we received an “unfair” advantage in the marketplace. Unfortunately, the Senate gave into the lobby. This means the cost of getting an FHA Loan is going up as well.

“This change does not affect the upfront premium charged by FHA for insuring loans,” according to a summary of the bill. (FHA already charges a 115 bp annual premium.)

FHA supporters were relieved to find their premium hike would benefit the FHA insurance fund and not be used to pay for H.R. 3630, which also extends unemployment benefits and maintains current Medicare reimbursement rates for doctors.

The FHA premium increase will be phased in over two years. The additional revenue will go toward bolstering the FHA capital reserve fund, which has a mere 0.24% capital ratio and a 50% chance of tipping into the red.

“Since the higher premiums go to the reserve fund and help offset credit risk, we have no opposition to it,” Stevens said. The former FHA commissioner also noted that the FHA hike helps to balance out the hike in GSE g-fees. He noted that the 10 bp hike in premiums should not have much effect on

The GSE g-fee hikes in the bill were originally proposed by Senate Democrats. House GOP lenders included it in their bill calling for a full-year extension of the payroll tax cut. The Senate took the House-passed bill (H.R. 3630), stripped it down to a two-month extension, retained the Fannie and Freddie g-fee increase, and added a hike in FHA premiums.

After a contentious standoff over the length of the extension, House GOP leaders finally caved in and agreed to the Senate version of bill. But raising mortgage fees had bipartisan acceptance and attempts by the Mortgage Bankers Association, the Realtors and homebuilders to lobby against it proved futile.

BOTTOM LINE: If you've been putting off refinancing your home loan or waiting to purchase a home, now is definitely the time to get in motion. With interest rates in the low 4% range and with the ability to refinance up to 125% of the appraised value (for those who's home values are "underwater") and do it with No Closing Cost - there has not been a better time to purchae or refinance in the last 50+ years.

 

Doug Huggins is recognized as the nation's leading expert on help indivduals and families find, qualify for and own a home of thier own, with little money down even with less than perfect credit. Let Doug refer you to a Top Mortgage Professional in your area - contact Doug - there's no cost and no obligation.  doug@thehomeownershipcenterusa.org