The United States Senate recently approved the long-term transportation funding bill and provision H.R. 22, which includes a new mortgage tax to pay for highway infrastructure costs. This “fee” is assigned to home buyers but is not in any way related to their mortgage. The California Association of Realtors (CAR) opposes this “fee” for the very reason that it does not relate to our home loans and it will result in a number of challenges for current and would-be home owners. Although the Senate has passed the transportation bill, the House has yet to approve their version of this legislation.
History of the G-Fee
All Freddie Mac and Fannie Mae conforming loans include a guarantee fee (or g-fee) that is used to pay for administrative costs to run these two companies as well as to help offset losses incurred from bad loans. In 2011, Congress added on another tax, which they tacked onto the g-fee. This new tax equated to .1% of the loan’s value. This tax funds the extension of unemployment benefits and is due to expire in 2021. Now, the Senate wants to prolong that add-on tax to 2025 for all new mortgages and use the funds to pay for highway infrastructure. This extended tax will cost home buyers thousands of dollars that fundamentally has nothing to do with their mortgage.
The Cons of this Add-on Transportation Tax
If a buyer purchases a median priced house in California for $489,560, puts 20% down and gets an interest rate of 4%, they will pay an EXTRA $8,100 for this transportation tax alone. As housing prices increase, this amount will follow suit. This tax will price more people out of California’s already expensive home buyer’s market.
Although its being referred to as a mortgage fee, is has nothing to do with the original intent of the guarantee fee, which is supposed to help offset administrative and operational costs and serve as a mortgage insurance of sorts, reducing the risk of our country’s two key lenders. The g-fee is not intended to be used for any other purpose, including maintaining our nation’s highways.
By adding this hidden tax into mortgages, home owners are handed the exclusive burden of paying for the transportation infrastructure that we all use. It makes much more sense to link such a ‘fee’ to the purchase of gasoline, as this distributes the financial load more equitably.
This tax will also result in making mortgage reform more challenging because any ensuing legislation that changes Fanny Mae and Freddie Mac will have be paid by the Treasury, leaving Congress to find another way to counterbalance the cost.
For more information on this hidden tax and what you can do to stop it from being enacted, we recommend visiting the following two websites: