Dec
19

Want To Beat The Newest, Mandatory Government Mortgage Fee?

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Want to save money on your next FHA mortgage or conventional mortgage via Fannie Mae or Freddie Mac? Start your FHA and conventional mortgage loan application today.

Beginning January 1, 2012, new, mandatory loan fees will make buying a home and refinancing one more expensive.

U.S. Payroll Tax Extension: Funded By New Mortgages

In December 2010, the U.S. government passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The act was meant to stimulate the national economy by lowering taxes, among other plans.

One such stimulus was a one-year FICA payroll tax reduction. FICA stands for Federal Insurance Contributions Act. FICA taxes fund Medicare and Social Security. The act lowered FICA taxes from 6.2 percent to 4.2 percent for 2011 only.

Last week, the Senate voted to extend the FICA tax holiday through February 29, 2012 at a cost of $33 billion. The House is expected to approve the measure, where it will then await signature by the President. The bill is expected to be signed into law this week.

From Title IV of the bill’s final form, these costs will be recouped via the mortgage market. The section is titled “Mortgage Fees And Premiums“. In it, Congress instructs Fannie Mae and Freddie Mac, and the FHA to take following specific measures:

  • Fannie Mae and Freddie Mac : Increase loan guarantee fees by 10 basis points or more versus current levels, and do not decrease other costs to compensate
  • FHA : Increase mortgage insurance premiums by 10 basis points

The extra fees amount to roughly $10 per month per $100,000 borrowed.

The lender must forward those monies to the U.S. Treasury.

The U.S. Government Changed Your Mortgage Payment

It’s been tough to shop for a mortgage rate since the economy hit the skids in 2007. Mortgage rates have been in free-fall, plunging from near 7 percent on a 30-year fixed-rate mortgage to today’s levels near 4 percent.

But as rates have dropped, loan costs have increased.

  • In 2008, the government introduced loan-level pricing adjustments (LLPAs) on all loans.
  • In 2009, the government upped its LLPAs 7 times throughout the course of the year
  • In 2010, closing costs jumped 37% as banks met government compliance standards.
  • In 2011, the FHA more than doubled monthly mortgage insurance premiums.

Each time loan costs rise, it mutes the effects of falling mortgage rates. Low rates don’t matter if high costs wipe them out.

For 2012, the government’s payroll tax extension’s net effect is to raise mortgage rates by roughly 0.10%. According to Freddie Mac’s weekly mortgage rate survey, this would immediately push conventional mortgage rates to an 8-week high.

For FHA-insured homeowners, the increase in the monthly mortgage insurance premium will render scores of homeowners FHA Streamline Refinance-ineligible. All borrowers must meet a 5% minimum savings requirement per FHA Streamline Refinance guidelines.

Raising mortgage insurance premiums by 10 basis points makes it that much harder to be eligible. If you’re FHA and you want to refinance via the FHA Streamline Refinance, get your application and case number now.

Beat the Increase: Start Your Application Before January 1, 2012

The government’s payroll tax extension would not go into effect until January 1, 2012 which means that loans submitted and in-process prior to January 1, 2012 should not be subject to higher fees and/or higher rates of mortgage insurance.

“Existing” loans are exempt from the new fees.

If you’ve been waiting for mortgage rates to fall, stop it. It won’t matter if mortgage rates fall because loan costs are rising. Get ahead of the change. Get your rate locked and get yourself in-process. It’s extra savings to your mortgage.

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