Ask the Expert


 Homebuyers to Pay for Tax Cut



By Rick Cirelli

We all recall the battle that took place in Congress recently to extend the tax cut on working Americans in order to help the economy. But, did you know that nearly everyone financing a home over the next 10 years will pay the bill for the two-month temporary extension that Congress approved and the President signed into law?

Technically, Congress increased the “guaranty fees” that Fannie Mae and Freddie Mac charge to lenders that securitize mortgage-backed securities (MBSs) with these agencies. Ultimately, this cost must either be absorbed by lenders, passed on to consumers, or some combination of the two. And I’ll bet it won’t be the lenders that volunteer to pay the price.

Therefore, the borrowers will pay for it.

The 10-basis-point increase in the guaranty fee or “G-fee” as it’s called, equates to a pricing difference of 30-40 basis points in terms of cost/rebate or roughly 0.125 percent in rate.

Does it seem right that a two-month temporary cut in the income tax rate should be paid by everyone financing a home for the next 10 years? I welcome your comments.


Mortgage Rate Update

Mortgage rates are holding on to their recent lows despite a stronger-than-expected employment report for the month of December.

The effect so far in the stock and bond markets is that Europe remains the critical focus for traders of MBSs. With no inflation fears as the U.S. job market improves and the Fed on record to keep rates low for the next year or so, Europe is the dominant force in the financial markets.

While I don’t expect any significant improvement in mortgage rates, the economic forces should keep mortgage rates near the all-time lows that we have been enjoying.