How Congress tied the new highway bill to mortgage rates

Congress just passed the “Developing a Reliable and Innovative Vision for the Economy Act” or the DRIVE Act. It’s a six-year highway authorization that will allow planning for important long-term projects around the country, and provides three years of guaranteed funding for the highway trust fund.  Highways are extremely important to any developed civilization.  The Romans in the Mediterranean back in Jesus day and the Incas in South America in the 1400s both had over 10,000 miles of roads that were critical to their long periods of economic success.
shutterstock_176683400 One of the ways the newly passed $47 billion bill was initially set to be paid for was by keeping the guaranty fees that Fannie Mae, Freddie Mac and FHA charge to guaranty loans elevated for an additional 4 years from 2021 to 2025. No one likely remembers (except maybe for regular listeners to our show) that TODAY’s 30 year fixed rates would be .1 percent lower if it were not for the fact that Congress put its hand in the mortgage cookie jar back in 2011. That’s the year when Congress and the Obama administration felt it was absolutely critical to the economy to extend the social security tax reduction for consumers for another 12 months. You remember, right?  In 2011, congress cut the percent of every employee’s income they have to contribute to Social Security from 6.2% down to 4.2%.  For the average worker earning the average pay of $44,000 a year, that put an extra $16.92 per week back on their paycheck. In order to pay for the extension of that (alleged) tremendous economic stimulus for another year in 2012, Congress ordered Fannie Mae, Freddie Mac and FHA to increase their guarantee fees. This increase of 0.1% (and the extra revenue collected from home buyers and homeowners) on every loan guaranteed through the year 2021 was directed to be passed directly to the United States Treasury. That is what is commonly referred to as a backdoor tax – Congress is taxing homeowners who have or will get loans for the 10 year period from 2012 to 2021, $100 a year for every $100,000 borrowed in order to pay for that one year social security tax break back in 2012. Well guess what, Congress thought it would be cool if they just, you know, bumped out the expiration date for that point 1% mortgage tax for another 4 years until 2025 as a way to pay for the new DRIVE Highway Bill. Luckily, housing industry groups squawked enough to keep that from happening this time around.  Don’t forget Congress initially tried using the guarantee fee maneuver as a way to pay for the Gulf of Mexico BP Oil Spill clean up, too. I’ll bet the point 0.1% mortgage tax never goes away – remember the Illinois toll way was just supposed to be temporary, too.

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