Transaction and Regulatory Committee Federal Committee
This material is for discussion purposes only and has not been approved by the Transaction and Regulatory Committee, Federal Committee, Executive Committee or the Board of Directors.
Issue: Should C.A.R., in conjunction with NAR, “SUPPORT” increases to Fannie Mae and Freddie Mac’s guarantee fee to fund federal housing related programs and/or offset the cost to maintain real estate related tax benefits?
Action: Required Legislation has been introduced that would extend a temporary increase in the guarantee fee (g-fee) of Fannie Mae and Freddie Mac (government sponsored enterprises or GSEs) to offset the costs of a program that would allow homeowners who are current on non-federal backed mortgages but are upside down, to refinance into a Federal Housing Administration (FHA) mortgage.
Options: 1. Take a “SUPPORT” position 2. Take an “OPPOSE” position 3. Take a “SUPPORT” or “OPPOSE” position on a case by case basis 4. Take no position
Background: On May 9, 2012, California Senator Diane Feinstein introduced S. 3047, the Expanding Refinancing Opportunities Act of 2012. The legislation would allow homeowners who are current on upside-down mortgages that are not federally backed to refinance into an FHA mortgage. In order to qualify the homeowner must:
• Be current on their mortgage, • Meet a minimum credit score, • Have a loan amount under the FHA loan limit, • Be a single family principal residence, and • Not have a loan to value (LTV) above 140 percent.
To cover the cost of this proposal the legislation would extend a 10 basis-point increase in the GSEs g-fee for an additional year.
The g-fee is the fee charged by the GSEs to cover projected credit losses from borrower defaults over the life of loans, administrative costs, and a return on capital. The fee is paid by the lender who passes this cost onto the borrower through higher interest rates or upfront fees.
Legislation was signed into law in December 2011 that increased this g-fee in order to pay for the extension of the payroll tax holiday, and maintain Medicare payments and unemployment benefits. Despite REALTORS® strong opposition to the diversion of housing resources to pay for non-housing uses, a ten-year increase in the g-fee of at least 10-basis points is being used to pay for the extensions. Historically, the g-fee should only be used for its intended purpose, especially given the financial difficulty the GSEs are facing.
Unlike the Medicare fix and payroll tax holiday the Feinstein bill would specifically fund a housing related program. Additionally, as Congress looks to reduce the debt and extend expiring tax cuts they will eventually look for new sources of revenue.
C.A.R. had strongly opposed the increase in the GSEs g-fees to pay for non-housing federal programs. The increased mortgage payments by homebuyers to fund these programs equates to a homebuyers tax.
Additionally, at C.A.R.’s Winter 2012 meetings, C.A.R. took the following position:
“That C.A.R., in conjunction with NAR, “SUPPORT” the extension of the Home Affordable Refinance Program (HARP) to allow for the government sponsored enterprises (GSE) to refinance non-GSE loans under the program.”
While C.A.R. has policy supporting the goals of S. 3047, it is unclear if we can support the “pay-for” mechanism.
NAR Policy: NAR has opposed the use of g-fees for purposes other than their intended purposes.
Should C.A.R., in conjunction with NAR, “SUPPORT” increases to Fannie Mae and Freddie Mac’s guarantee fee to fund federal housing related programs and/or offset the cost to maintain real estate