March 12, 2012 09:38 PM UTC

Another reason Congress has a 13% approval rating

• 2 Comments
• by: allyncooper

Senators propose higher g-fees at Fannie Mae and Freddie Mac to pay for Gulf cleanup

In yet another example of dysfunctional behavior from Congress, a group of Senators want to extend higher Fanny Mae and Freddie Mac guarantee fees to pay for continued cleanup from the British Petroleum Gulf Coast oil spill. Congress has already approved raising the fees by at least 10 basis points effective April 1, 2012.

Guarantee fees are what Fanny Mae and Freedie Mac, often referred to as government sponsored enterprises or GSE’s, charge to purchase single family mortgages and securitize them for offer to investors. The GSE’s currently owe the U.S. Treasury about $151 billion as a result of the financial collapse of the housing market.  The higher fees passed by Congress at the end of December were in response to the new funding mechanism for the politically contentious payroll tax cut extension.

Gulf Coast Senators, led by Sens. Mary Landrieu, D- La, and Richard Shelby, R- Ala. have introduced an amendment to the Restore the Gulf Coast Act of 2011 which would extend the fee hike, currently authorized through 2021, for additional monies to be paid into a trust fund for damage repair and restoration paid for only partially by fines levied against British Petroleum.

A tax on homebuyers and consumers

Critics point out using the g-fees to pay for Gulf Coast cleanup, in addition to a revenue stopgap for the payroll tax cut, effectively penalizes potential homebuyers and those looking to refinance existing mortgages at a time when the housing market needs all the help it can get and refinancing is one tool that can be effective in averting foreclosure.  The Mortgage Bankers Association CEO David Stevens said in December the increased g-fees could mean an increase of $ 4,000 on a $200,000 mortgage. Currently Fanny and Freddie are involved in about 65% of all new residential mortages.

Predictably, housing interests are pushing back. In a letter to Sens. Harry Reid, D-Nev, and Mitch McConnell, R-Ky, the Mortgage Bankers Association, the National Association of Home Builders, and the National Association of Realtors, stated that “guarantee fees are a critical risk management tool used by Fannie Mae and Freddie Mac to protect against losses from faulty loans. Increasing g-fees for other purposes – even just extending the current fee increase by one year at a lower rate – effectively taxes potential homebuyers and consumers looking to refinance their mortgages,”

According to most observers, the amendment is unlikely to pass given the stiff lobbying of the MBA, the NAHB, and the NAR, but is yet another example of the thought process and special influence legislation that has earned Congress such low public approval and is problematic to the financial predicament we find ourselves in.

Make no mistake – the Gulf oil spill was a tragedy and the damage to the enviroment must be repaired. But to expect the housing business (and ultimately homebuyers and consumers) to pay for it is a gross displacement of financial responsibility. British Petroleum and its contractors should be paying for the cleanup with money paid into the cleanup trust fund. Any additional money paid into the trust fund should be assessed to the extractive energy industry as a whole in the form of a tax or special enviromental assessment fee. This “smoke and mirrors” method of paying for the Gulf cleanup simply illustrates why Congress has a well deserved abysmal approval rating.