It's not that the US housing industry believes college students should be hit with a doubling of their student loan rates on July 1. It just doesn't want to see mortgage costs rise in order to help them out.
Lobbyists involved in the building, selling and financing of homes worry that deeply divided Democrats and Republicans in Congress - who have been unable to find common ground on spending cuts or tax hikes - will once again push up the mortgage guarantee fees that Fannie Mae and Freddie Mac charge lenders.
The move is being mulled by lawmakers as a way to pay for some popular programs in an election year - such as maintaining low student loan rates - without adding to already large budget deficits. But for many the talk in Congress to again turn to the two financially troubled, government-controlled housing finance firms as a source of cash raises red flags. It comes just months after Congress tapped the two firms' loan guarantee fees, or G-fees in industry parlance, to fund a two-month extension of a payroll tax cut and jobless aid.
"It sets a very bad precedent for G-fees to pay for anything other than Fannie and Freddie providing insurance on loans. It opens the door for using them as a piggy bank," said Mark Zandi, chief economist at Moody's Analytics. Congress's last-minute deal in December tapped a 10 basis point increase in the G-fees to the tune of $37.5 billion over 10 years. The Mortgage Bankers Association, an industry group, calculates that the fee increase led to a 1/8 percentage point rise in mortgage rates, adding about $14 to the monthly payment on a $200,000, 30-year fixed-rate mortgage, or some $5,000 over the life of the loan.
Very low interest rates have helped mask the impact. The yield on the 10-year Treasury note, which is used as a benchmark for many mortgage rates, reached its lowest level in at least 60 years on Wednesday. And rates on the average 30-year mortgage have fallen since the end of last year, hitting 3.91 percent last week, according to the MBA, compared with 4.07 percent at the end of December.
But another fee increase would push mortgage costs higher, putting further weight on a housing market that has only just begun to show a little life. "Here we are raising (mortgage) rates arbitrarily," said David Stevens, chief executive officer for the Mortgage Bankers Association. "Unfortunately, it's impacting the housing recovery."
That said, Fannie Mae and Freddie Mac, which provide the financing for about 60 percent of all new home loans, want to raise the mortgage fees anyway, but they want to use the money to bolster their own finances. "It's one of the options," said Democratic Senator Bob Casey, who authored the December compromise with encouragement from the Obama administration. "It's another place to go look for some revenue."
Fannie Mae and Freddie Mac have soaked up more than $180 billion in taxpayer aid since being seized by the government at the height of the financial crisis in 2008. The companies, which stocked up on riskier loans during the housing boom, remain exposed to more than $5 trillion in mortgages and loan guarantees. While both turned a profit in the first quarter, they are burdened by the need to pay dividends to the government for its nearly 80 percent stake.
Fannie Mae and Freddie Mac purchase loans from lenders and repackage them as securities for investors, offering a guarantee against losses from defaults. They collect the fees from lenders to cover the cost of this guarantee. Although the companies have stemmed losses in recent months, diverting fees away from Fannie Mae and Freddie Mac raises the risk that taxpayers will have to prop them up with more funds.
The question of whether taxpayers will ever be repaid for Fannie Mae and Freddie Mac's bailout plays out in the broader debate about the appropriate government role in insuring mortgages. Some argue the first step in reforming the housing finance system and winding down the companies should be to raise the fees to recapitalize the firms and whittle down their debt to the Treasury.
Lawmakers on both sides of the aisle think the two government-sponsored enterprises, or GSEs, should eventually be shut down. However, the law to extend payroll tax cuts requires them to remain in business for 10 years to generate the revenue to cover the tax cut extension. "As long as the GSEs exist in any framework or under any name, it will still smell as sweet as a rose to use them as a funding source to pay for something else," said Representative Scott Garrett, a Republican who chairs the House panel that oversees the two
Since December, Congress has attempted to tap the fees twice. The most recent effort was in March, when senators Mary Landrieu, a Democrat, and Richard Shelby, a Republican, proposed using them to fund cleanup of Gulf Coast damage caused by the 2010 BP oil spill. The plan was pulled at the last minute before the Senate could vote on it, but it jolted housing trade groups into action to try to head off any further efforts.
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