Posts Tagged ‘mortgage fees’

An ironic twist to Team O’s plan for refinancing underwater mortgages …

February 7, 2012

Last week, the Campaigner-in-Chief stumped for a program to allow folks with underwater mortgages to refinance at current market interest rates.

According to Obama:

There are more than 10 million homeowners across the country who, because of an unprecedented decline in home prices, owe more on their mortgage than their homes are worth.

For those responsible homeowners, there are actions we can take now to provide some relief.

That’s why I’m sending Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage by refinancing at today’s low rates.

No more red tape or runaround from the banks.

A small fee on the largest financial institutions will ensure that it won’t add to the deficit and will give those banks that were rescued by taxpayers a chance to repay a deficit of trust.

I’m basically ok with the idea, but there’s some irony: Remember when the payroll tax cut was extended (for 2 months)  last December?

Well, it was also pitched as deficit neutral.

How was it going to be paid for?

Well, the 2-month payroll tax holiday is being offset (over 10 years) by an increase in mortgage fees,

Every new or refinancing loan going through Fannie Mae or Freddie Mac – that’s over 90% of all mortgages – get tagged with an added fee (20 basis points, .2 %)

According to NPR, the added fee works out to about $17 per month for an average mortgage of about $200,000.

So, let me get this straight: Team O is going to force lenders to cut the rate on underwater mortgages — most of which will go thru Fannie and Freddie — and then hit the folks who are refinancing with a an added fee for cover the cost of payroll tax cuts.

This stuff gets wackier by the minute  …

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Have I got a deal for you …

January 3, 2012

Hooray.

Big victory for the middle class.

President Obama got his 2-month payroll tax holiday.

So, 150 million folks get $1,000 in 2012 tax savings.

Oops.

The program is only for 2 months, so the committed tax savings are only $167.

Still better than nothing, right?

Not so fast

How is it being paid for?

Well, first, “paid for” is a misnomer … it’s being offset in the governments 10 year hypothetical budget.

Hypothetical because the Senate hasn’t passed a 2012 budget, let alone a 10-year budget.

OK, let’s pretend.

The 2-month payroll tax holiday is being offset (over 10 years) by an increase in mortgage fees,

Every new or refinancing  loan going through Fannie Mae or Freddie Mac – that’s over 90% of all mortgages – get tagged with an added  fee (20 basis points, .2 %)

According to NPR, the added fee works out to about $17 per month for an average mortgage of about $200,000.

So, let’s work the nums.

“Average” folks who don’t have or don’t get or don’t refinance a mortgage walk away with $167 free and clear.

That’s a good deal.

“Average” folks who initiate a loan or refinance through Fannie or Freddie get hit with $17 in added monthly fees as long as they hold a mortgage … assuming that the added fee never goes away – a pretty safe bet.

Let’s pretend the average guy stays mortgaged for 30 years.

What’s the financial impact?

Well, the nominal cost of the mortgage adder is over $6,000.

But, to be fair, let’s discount it back to a present value.

For 30 years, the mortgage cost adder has an PV of over $3,100.

So, for the average guy with a new or refinanced mortgage, the payroll tax holiday will COST him a NPV loss of almost $3,000.

Still wonder why the economy is in trouble?

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