Stealth Tax on Homeowners in Trump Budget

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In 2011, when Congress and the Obama Administration
wanted to give taxpayers a temporary 2.0 percentage point reduction in payroll
(FICA and Medicare) taxes, it funded the cut in part by increasing the g-fees
charged by Freddie Mac and Fannie Mae (the GSEs) for their mortgage guarantees
by 0.1 percentage point.  The payroll tax
break is long over, but the g-fee increase doesn’t expire until 2021. The
proposed budget released by the Trump Administration today wants to extend and
add to it.

Little of the proposed $4.4 trillion budget is
expected to survive Congress, which already adopted a two-year budget plan last
week under threat of the second shutdown so far in 2018. However, the proposal
to extend the earlier increase through 2023 and add another 0.1 percent to it is
projected to bring in $25.7 billion over the next 10 years.

The fee would be in addition to the healthy share of
the GSE’s revenues which Treasury collects in the form of dividends each
quarter.  While Freddie and Fannie are
both expected to require the first draws on their lines of credit with Treasury
since 2012, the proposed budget envisions collecting $185 billion from them over
the next decade.  The draw, an
anticipated $5.1 billion, will be necessary because the new tax law changes how
some of their assets are valued, resulting in a one-time tax hit.

The budget, if passed, would also relieve the GSEs of
their obligation
to contribute to the trust funds set up to provide money for
affordable housing.

Bloomberg says the budget plan
provides a little insight into how the administration views the future of the
two GSEs
which have operated under government conservatorship since 2008.  After an initial flurry of speculation that
Treasury Secretary Steven Mnuchin might favor releasing Freddie and Fannie from
conservatorship, little has been said about them or the housing finance system
in general.  If such plans are still on
the table, Bloomberg says, they are not reflected in the budget. 

The budget document does say however
that raising the g-fees “would help level the playing field for private
lenders.”  Except for some jumbo loans,
private money has been absent from the mortgage market since the housing
crisis.

“The notion that higher g-fees stimulate private capital is a bit of a stretch,” says Matthew Graham of Mortgage News Daily.  “If the first round of major g-fee hikes didn’t do the trick, there’s no reason to believe the next 0.1 percent is anything other than another stealth tax on homeowners.  After all is said and done, a 0.1 g-fee increase amounts to a 0.1% increase in conforming mortgage rates.”



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