Government Lending

Mortgage fees to help pay for Biden infrastructure bill

Measure would yield $21 billion for bridges, roads, rural internet

The Senate is banking on extending mortgage fees that Fannie Mae and Freddie Mac indirectly charge to consumers to help pay for traditional infrastructure.

According to legislative text publicly shared for the first time today by the U.S. Senate, renewing the guarantee fees through 2032 would result in $21 billion toward the $579 billion plan to repair roads, expand rural broadband and modernize the power grid.

Congress tacked on an additional 10 basis points in g-fees in 2011 to pay for a three-month payroll tax cut. That increase would have expired this year in September.

Instead, the infrastructure package contains language to change the expiration year from 2021 to 2032. That means the elevated guarantee fees would be around for another decade, depending on when the increase would take effect.

Freddie Mac and Fannie Mae charge g-fees to lenders to cover credit losses from borrower defaults, administrative costs and a return on capital. In 2019, g-fees amounted to 58 basis points on average for a 30-year fixed rate loan. Those increases are passed on to borrowers in the form of a higher interest rate.

Lenders typically pass on the extra cost to borrowers, according to a spokesperson Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac. The person would not say just how much of the g-fee is paid by the lender versus the borrower.

Last week, affordable housing advocates and industry stakeholders alike decried the use of guarantee fees to pay for the bipartisan infrastructure package, which does not have a housing component.

The two dozen groups which signed onto a letter opposing the g-fee increase included trade groups such as the Mortgage Bankers Association, the American Bankers Association and the Housing Policy Council; affordable housing advocates such as the National Housing Conference, as well as the National Association of Realtors, which represents real estate brokers.

Bill Killmer, the MBA’s senior vice president for legislative and political affairs, called the increase ”a tax on housing consumers for one purpose, risk management of the [Government Sponsored Entities] loan portfolio, to pay for some other purpose.”

The infrastructure package must first go through an open amendment process, when the full Senate can request changes. After that process concludes, the Senate will vote on a unified amendment, or wraparound amendment, to incorporate the changes. After that, the Senate will vote on the bill, which needs 60 votes to pass.

After that, the House of Representatives will take up the bill. That is not expected to happen until after August, a month in which many members of Congress are doing work in their individual districts.

The House could, at that point, pass the bill and send it to President Joe Biden. It is more likely, however, that there would be some changes — which would need to be ironed out in conference between the two chambers. After that, both chambers would vote again on the updated version of the bill.

While the arduous negotiations for the bipartisan infrastructure bill continue, Senate Democrats are pushing for a parallel $3.5 trillion infrastructure bill which would include social infrastructure programs, including provisions to address housing affordability.

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