California REALTORS® are opposing a provision in the Senate version of a long-term transportation bill that creates a new tax on mortgages to pay for transportation infrastructure. The U.S. Senate has already passed the bill, but the House has not passed its version of the legislation.
A portion of every conforming loan, (those backed by Fannie Mae and Freddie Mac) is a fee used to offset losses from bad loans and to pay for the administrative costs of running these companies. These are called guarantee fees (or g-fees). In 2011 Congress added on a tax of an additional 10 Basis Points, equal to 0.1 percent of the value of the loan, to the guarantee fee of every new loan to fund an extension of unemployment benefits. That "add on" tax was due to expire in 2021 and loans originated after that date would not be subject to the additional fee.
The U.S. Senate just passed a long-term transportation funding bill that extends the "add-on" fee until 2025 for all new mortgages in order to pay for transportation infrastructure. This means buyers purchasing a median-priced California home of $489,560 using a typical conforming loan with a 20 percent down payment and a 4 percent interest rate will pay an additional $8,100. This figure is sure to rise with an increase in sales prices.
"This 'fee' is actually a disguised tax on homebuyers. It's a mortgage tax, pure and simple," said Chris Isaacson, president of the Silicon Valley Association of REALTORS®. "Congress may want to call it a fee, but it is used for purposes unrelated to the mortgage, and is therefore a tax. Adding another $8,000 or more to the median-priced home will price thousands of prospective homebuyers out of the market."
The California Association of REALTORS® opposes this tax because of its impact on homebuyers and housing affordability. The g-fees should only be used to reduce Fannie Mae and Freddie Mac's (and therefore the taxpayers') exposure to the risks associated with guaranteeing a mortgage and for the operation of these companies. A mortgage tax will also make it more difficult to enact meaningful mortgage finance reform because going forward, Congress would need to offset the "cost" of reducing or eliminating the tax.
"While everyone would benefit from improved infrastructure, a significant portion of the cost would be borne only by those purchasing homes using a conforming loan. It will further erode housing affordability. In most areas of California, purchasing a home remains unaffordable to many. Adding yet another cost to homeownership in the form of this tax will prevent even more families from owning a home," added Isaacson.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
For further information, please email or call the SILVAR office at (408) 200-0100.