The Payroll Tax Cut and Its Effects on Mortgage Loans

As we found out last week, fees for new loans will be going up to pay for the two-month payroll tax cut. 

Under the "unintended consequences" banner analysts were quick to point out that, given the increase is scheduled for ten years, Fannie Mae and Freddie Mac are not going away any time soon unless the government comes up with the money elsewhere. 

F&F will not absorb this increase, nor will lenders; it will, of course, be passed on to borrowers. (The bill also will raise the annual insurance premium borrowers pay on FHA loans by one-tenth of a percent.)The increased fee, which makes it difficult for Congress to work on efforts to shut down Fannie and Freddie, based on current rates and a $200,000 loan, will cost the agency borrower about $11 per month.

"These institutions, which have been so costly to Americans and are so necessary to the housing recovery, should not be the piggy bank for future arbitrary tax policy," Dave Stevens (MBA) said. Due to their government ownership, investors still view their (and FHA/VA) MBS's as safer investments than those offered by private firms. The law allows FHFA to phase in the fee over two years.

Last week, we had a slew of housing news, capped off by learning that New Home Sales for November were up 1.6 percent, with a median sales price of $214,100 and an average sales price was $242,900. But look at these regional differences: sales in the Northeast fell 26 percent, the West was -17 percent, but the Midwest improved by 7.5 percent and the South by 13 percent. But there was no holiday cheer for bonds, as 10-yr T-notes moved up to close at 2.03 percent. But rememberm it was an early close for the bond market, and trading desks were half-staffed to begin with.

For economic news on this holiday-shortened, lightly-staffed, last week of the year, we don't have much. Today is a Case-Shiller number and Consumer Confidence, Thursday is Jobless Claims and Pending Home Sales, and then on Friday is the Chicago PMI numbers. And so far things seem pretty quiet out there, rate-wise, with prices little changed from Friday's close.