Mortgage Refinances, Home Purchases Affected By Payroll Tax Extension

Homeowners who refinance their properties and homebuyers who seek out new properties will be faced with higher fees on FHA loans and other mortgages backed by government sponsored entities beginning next year.

Earlier this month, Sen. Bob Casey (D-PA) proposed raising fees on mortgages backed by government sponsored entities as a means to pay for extending the payroll tax. In response to his idea, the National Association of Realtors (NAR) and the National Association of Home Builders (NAHB) sent him a letter stating that higher fees unfairly target U.S. homeowners.

"With the housing market struggling to regain its footing, such a short-sighted move would be extremely counterproductive and threaten the fragile economic recovery," NAHB chairman Bob Nielsen wrote.

Despite the opposition of NAR and NAHB, lawmakers moved forward last weekend with the payroll tax extension, including the mortgage fee modification provision. Fannie Mae and Freddie Mac back about 31 million mortgages in the United States, which accounts for about half of all home loans.

The bill calls for fees to be raised by at least one-eighth of a percentage point from the 0.26 percent of the loan relegating to fees last year. Republican senators anticipated higher fees would produce between $30 billion and $40 billion in additional revenue over the next 10 years. The Congressional Budget Office (CBO) still has yet to analyze the long-term effects of the payroll tax extension, including the impact on the housing market.

Prospective homebuyers and owners interested in a mortgage refinance should monitor the developments surrounding higher mortgage fees and get in touch with an experienced mortgage lender soon. If you have already begun the mortgage refinance process, you may be able to expedite lending before January 1, 2012, when the new fees are enacted. If you weren't sure when to refinance, now might be the ideal time.

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