After intense pressure from REALTORS® and coalition partners, Congress has removed a proposed new tax on mortgages as part of the highway spending bill. The bill would have included guarantee fees on conforming loans which would have gone to pay for transportation infrastructure. Congress has officially removed it, the Senate has removed it, and President Obama signed H.R. 22, the Surface Transportation Reauthorization and Reform Act of 2015 this month.
Every conforming loan, which are loans backed by Fannie Mae and Freddie Mac, has 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. The U.S. Senate version of the long-term transportation funding bill had a provision extending the "add-on" fee until 2025 for all new mortgages in order to pay for transportation infrastructure.
California REALTORS® opposed this provision, claiming this "fee" was actually a disguised tax on homebuyers because it would be used for purposes unrelated to the mortgage. REALTORS® said this tax would impact homebuyers and housing affordability, especially in California, where home prices are skyrocketing. If passed, 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 would have had to pay an additional $8,100. This figure would rise with an increase in sales prices.
"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. Adding thousands of dollars more to a median-priced home would price thousands of prospective homebuyers out of the market," said Chris Isaacson, president of the Silicon Valley Association of REALTORS®.
For the past several months, REALTOR® associations at the local, state and national level mobilized members heavily to urge Congress to oppose this tax. "We thank our members for responding to our Calls for Action and praise our legislators for coming to the right decision. 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, adding yet another cost to homeownership and preventing 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.