Once again, the idiots in Washington, DC are trying to find a way to make it harder and more expensive to purchase a home.
Background: Every type of loan has some sort of mortgage insurance which the buyer is required to pay. It is called PMI (Private Mortgage Insurance), or MIP (Mortgage Insurance Premium), or a Guarantee Fee. This insurance can be an up-front lump sum payment, a monthly premium added onto your note, or a combination of both. Even conventional loans with a 20% down payment, which don’t charge any monthly PMI, compensate for that by having a higher interest rate! So, while some forms of PMI are more apparent than others, the American homeowner always ends up paying to cover the lender’s risk of loans going bad.
Behind every lender is some entity which is ultimately responsible for the loan. VA loans are backed by the Veterans Administration; Rural Development loans are backed by the US Department of Agriculture; and FHA loans are backed by the Department of Housing and Urban Development (HUD). Note that these are all government agencies…
Conventional loans are backed by FNMA (Federal National Mortgage Association, commonly called “Fannie Mae”) and FHLMC (Federal Home Loan Mortgage Corporation, known as “Freddie Mac”). These are public government-sponsored enterprises (GSEs), created decades ago to provide a “private” secondary market for mortgages. In simple terms, they purchase conventional mortgages from the lenders. In our opinion, since the government has pretty much taken over Fannie and Freddie along with every other form of home lending, the GSEs are now just another department of the government.
Unfortunately, if you want to finance the purchase of a house, you WILL end up paying some form of mortgage insurance. It is a necessary evil, and there is no way around it. With so many mortgages going bad in past years, lenders are more reluctant than ever to write loans, and mortgage insurance helps reduce their risk. Without it, financing a house would be even harder, so there is a benefit to homebuyers.
The problem: RIGHT NOW, a new transportation (highway) funding bill is being debated in Congress which would steal part of those premiums away from the GSEs and use it for roads! The federal government cannot resist ANY opportunity to take money from taxpayers whenever they see it, and this is just the latest attempt by them to do so. It turns out that they raised guarantee fee rates for the GSEs back in 2011 to “offset” a measly 2-month payroll tax cut. This rate increase was for 10 YEARS! In other words, the millions of hardworking Americans who financed or will finance a home with a conventional loan between 2011 and 2021 will be paying for that “tax cut” over the entire life of their mortgages!
The highway funding bill currently in Congress seeks to extend that rate increase another 4 years. And, there’s no telling if they’ll try to raise the rates even more! Either way would keep the financial burden squarely on the shoulders of homeowners. This will prolong the harm being done to everyone trying to purchase a home, and possibly make it worse, all the way through the year 2025!
We urge you to contact your Senators and Representatives and ask them to oppose any use of guarantee fees (“G-fees”) in this highway bill. Homebuyers should NOT have a special “tax” placed on them alone to fund public projects which have nothing at all to do with housing.
You can get contact info for your Senators and Representatives at this website simply by entering your zip code.
Please act NOW, as this bill could be voted on at any time! They are pressing hard to get it pushed through.