30Dec2011
Dan Green
Author
Dan Green
Filed Under
Mortgage Strategy

Confirmed : Mortgage Fees To Rise For Borrowers In January 2012

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2012 Payroll Tax Extension Mortgage Rates

Within weeks, new, required loan fees will make buying a home -- and refinancing one -- more expensive. Save money on your next FHA mortgage, or conventional one.

Start your  mortgage loan application today.

Click here to get today's mortgage rates.

U.S. Payroll Tax Extension : Funded By New Mortgages

In December 2010, the U.S. government passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The act was meant to stimulate the national economy by lowering taxes, among other plans.

One such stimulus was a one-year FICA payroll tax reduction. FICA stands for Federal Insurance Contributions Act. FICA taxes fund Medicare and Social Security. The act lowered FICA taxes from from 6.2 percent to 4.2 percent for 2011 only.

In late-December, the Congress voted to extend the FICA tax holiday through February 29, 2012 at a cost of $33 billion. The bill has been signed into law and implementation has begun.

From Title IV of the bill's final form, the $33 billion price tag will be partially funded by home buyers and refinance households. The bill's section is titled "Mortgage Fees And Premiums". In it, Congress instructs Fannie Mae and Freddie Mac, and the FHA to take following specific measures :

  • Fannie Mae and Freddie Mac : Increase loan guarantee fees by 10 basis points or more versus current levels, and do not decrease other costs to compensate
  • FHA : Increase mortgage insurance premiums by 10 basis points

The extra fees amount to roughly $10 per month per $100,000 borrowed.

In places like San Francisco or Arlington, Virginia, where local jumbo loan limits reach as high as $625,500 and $729,750 for conventional and FHA mortgages, respectively, mortgagors should expect to pay as much as $73 more each month.

The U.S. Government Changed Your Mortgage Payment

It's been tough to shop for a mortgage rate since the economy hit the skids in 2007. Mortgage rates have been in free-fall, plunging from near 7 percent on a 30-year fixed-rate mortgage to today's levels near 4 percent.

But as rates have dropped, loan costs have increased.

  • In 2008, the government introduced loan-level pricing adjustments (LLPAs) on all loans.
  • In 2009, the government upped its LLPAs 7 times throughout the course of the year
  • In 2010, closing costs jumped 37% as banks met government compliance standards.
  • In 2011, the FHA more than doubled monthly mortgage insurance premiums.

Each time loan costs rise, it mutes the effects of falling mortgage rates. Low rates don't matter if high costs wipe them out.

Click here to get today's mortgage rates.

For 2012, the government's payroll tax extension's net effect is to raise mortgage rates by roughly 0.10%. According to Freddie Mac's weekly mortgage rate survey, this would immediately push conventional mortgage rates to a multi-month high.

In addition, the government has left the door open to additional price hikes, stating that more loan fees may be necessary to meet requirements over the coming months and years.

For FHA-insured homeowners, the increase in the monthly mortgage insurance premium will render scores of homeowners FHA Streamline Refinance-ineligible. All borrowers must meet a 5% minimum savings requirement per FHA Streamline Refinance guidelines.

Raising mortgage insurance premiums by 10 basis points makes it that much harder to be eligible. If you're FHA and you want to refinance via the FHA Streamline Refinance, get your application and case number now.

New Mortgage Fees "Go Live" In Late-January

Fannie Mae and Freddie Mac have been instructed to start collecting the new, higher guarantee fees effective April 1, 2012.

However, mortgage applicants will notice new fees appearing sooner than that. This is because loans that land with Fannie or Freddie can take 75 days or more to get there.

Here's why.

First, your loan is locked. Then, your loan is underwritten, closed, and funded. For a purchase or a refinance, this process can range from 10 days to 60 days or longer, depending on the traits of your particular transaction.

Then, post-closing, your mortgage must be prepared for delivery to Fannie Mae or Freddie Mac, a process which typically requires a re-review of your complete loan file and a quality control audit to minimize long-term lender liability.

This post-closing/audit process can be a 1-day thing, or it can take weeks.

Only after the audit is complete will your  loan be delivered to Fannie Mae or Freddie Mac, which is why mortgage applicants everywhere will start paying the new, 10 basis point guarantee fee well in advance of the April 1, 2012 deadline -- it takes time to get a loan to the secondary mortgage markets.

New mortgage "payroll tax" fees will be levied on applicants starting no later than late-January.

Click here to get today's mortgage rates.

Beat The Increase : Start Your Application Now

Once the government's new loan fees go into effect, they will be required with all Fannie Mae and Freddie Mac mortgage without exception. Loans locked after the rollout must pay the new fee. Loans locked prior will be exempt.

If you've been waiting for mortgage rates to fall, it's time to stop. Don't get greedy. Rates are already super-low. Besides, falling mortgage rates do little to help when loan costs are rising.

Get locked and exempt yourself from new fees. It's extra savings to your mortgage.

Click here to get today's mortgage rates.

About the Author

Dan Green is a mortgage market expert, providing over 10 years of direct-to-consumer advice. NMLS #1019791. You can also connect with Dan on Twitter and on Google+.

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