A controversial bill currently under consideration in the U.S. Senate would substantially delay cuts to the fees that Fannie Mae and Freddie Mac charge lenders to guarantee loans, and use those very fees to fund massive transportation projects.
The Developing a Reliable and Innovative Vision for the Economy Act, also called the DRIVE Act, is 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, according to the Senate Committee on Environment and Public Works.
The bill’s backers, which a bipartisan coalition led by Senate Majority Leader Mitch McConnell, R-Ky., and Sens. Jim Inhofe, R-Okla., and Barbara Boxer, D-Calif., say that the $47 billion bill is “fully offset with spending reductions or changes to federal programs and does not increase the deficit or raise taxes.”
But one of the so-called “pay-fors” in the bill - the mechanism which funds the bill - is a significant delay to scheduled cuts in g-fees.
According to the Senate Committee on Environment and Public Works, increases in Fannie and Freddie’s g-fees, which were originally put in place in 2011, are set to decline by 10 basis points at the end of 2021.
But to fund part of the transportation bill, the decrease in g-fees would be delayed until the end of 2025 – a four-year extension of the increased g-fees.
The Senate Committee on Environment and Public Works said that the delay in g-fee cuts would fund $1.9 billion of the $47 billion needed to fund the bill.
In the Senate Committee on Environment and Public Works explanation of the funding of the bill, which can be read here, it states, “the regulator for Fannie Mae and Freddie Mac recently completed a review of the guarantee fees and found ‘no compelling economic reason to change the general level of fees’ which are continued by this provision.”
But the bill was met with controversy, as McConnell called for a vote from the full Senate on the bill, after reportedly introducing it just only one hour earlier.
According to a report from TheHill.com, the Senate voted 41-56 against moving forward with the bill, with many Senators stating that they did not have enough time to review the 1,030-page bill.
The bill wasn’t only met with controversy on the Senate floor, some of the largest groups in housing finance are decrying the use of g-fees to fund transportation projects.
The president and CEO of the Mortgage Bankers Association, David Stevens, criticized the Senate plan, urging Congress to “go back to the drawing board” on the funding for the bill.
“Taxing homebuyers, which is the practical effect of increasing guarantee fees, to pay for unrelated government spending like this, is simply bad policy,” Stevens said.
“It’s bad for borrowers, it’s bad for the housing market and it’s bad for the economy, just as all three are finally showing signs of recovering from the 2008 meltdown,” Stevens continued. “That is why we are asking all senators to vote against this bill until they can find a more appropriate funding mechanism.”
The MBA said that its grassroots advocacy arm, the Mortgage Action Alliance, issued a “call to action,” requesting that its members contact their senators and tell them to reject the g-fee provision.
“G-fees are a critical risk management tool used by Fannie Mae and Freddie Mac to protect against losses from faulty loans,” the MBA said in a statement.
“Increasing g-fees for other purposes effectively taxes potential homebuyers and consumers looking to refinance their mortgages,” the MBA continued. That increase has harmed homebuyers and consumers--and continues to do so every day. Please contact your senators to make clear to them that homeownership cannot, and must not, be used as the nation’s piggybank.”
Earlier this year, the MBA joined the American Bankers Association, American Land Title Association, Credit Union National Association, Financial Services Roundtable, Housing Policy Council, Leading Builders of America,National Association of Federal Credit Unions, National Association of Home Builders, and National Association of Realtors to send a letter to the leaders of the U.S. Senate Committee on the Budget, requesting that g-fees no longer be used to fund federal spending.
The letter was in response to a push from bipartisan group of senators, led by Sen. Mike Crapo, R-Idaho, and Sen. Mark Warner, D-Va., who announced a budget point of order that would prevent G-fees from being used to offset federal spending, a practice the Senators call a “budgetary gimmick” and a “back door tax” on homeowners.
The MBA wasn’t alone in voicing its displeasure with the bill.
Tom Woods, chairman of the National Association of Home Builders, called the bill “outrageous” and said that g-fees should not be used in this manner.
“It is outrageous that Congress would consider using g-fees to cover the cost of programs completely unrelated to housing,” Woods said.
“With first-time homebuyers still hesitant to enter the marketplace, it makes no sense to impose what amounts to a new tax on homeownership that will disproportionately affect low- to moderate-income borrowers,” Woods continued.
“These fees should only be used for their intended purpose - to protect against mortgage defaults and ensure the safety and soundness of the housing finance system,” Woods said.
“Before attempting to advance the transportation bill again, senators must strip the g-fee provision out of the legislation and look for other means to fund the measure,” Woods concluded. “Homeownership cannot, and must not, be used as the nation's piggybank.”
The bill is still under consideration, but according to a separate report from TheHill.com, Senate Minority Leader Harry Reid, D-Nev., said Wednesday that he has "some significant issues” with the bill and plans to meet with other Senate Democrats to debate the bill.
“We've worked through the night and I think we have a basic understanding of it,” Reid said, per TheHill.com. "So I’m having a caucus today, and we'll have my ranking members from Finance, Commerce, Energy, Banking report on how they look at this bill. It's my hope that we can work our way through all the issues dealing with this legislation.”