Only in Washington.
True to “sausage-factory” form, Congress and the Obama administration have figured out how to pay for an extension of the payroll tax cut: by a tack-on fee to Fannie and Freddie, amounting to an average of approximately $11 per month over the life of the typical loan.
Now, around here, we aren’t necessarily opposed to the idea of raising the fees on government-subsidized mortgages to better reflect the comprehensive costs of that subsidy (all-inclusive of heretofore “external” costs).
But this has nothing to do with pricing-in the subsidies for providing the underlying service: mortgage-holders (mostly the middle class) will be soaked in order to pay for a completely unreleated policy priority.
And so, for perhaps the first time ever, we find ourselves agreeing with the likes of the Mortgage Banker’s Association head (David Stevens) that this is a bad idea, if not unfair, and downright puzzling.
For the middle class, it is a circular transfer of wealth. They will now subsidize their own payroll tax cut (out of their soon-and-distant future mortgage payments). Of course, the payroll tax cut is disproportionately enjoyed by those even lower on the income spectrum — and they could certainly use the relief; no argument there. But it’s not as if the “middle class” is rolling in the dough either.
The other disturbing aspect of this deal is that it is merely a two-month stop-gap. So the GSEs get a permanent fee increase for two more months of stimulus sugar-high.
For that, as many industry commentators pointed out, we get a permanent reliance on Fannie and Freddie as yet another welfare till (one of many to be raided as public finances worsen). It’s a lot like taking the axe to your furniture to burn the wood for heat. It buys you a little time, but you’ve really worsened matters for yourself permanently (if you are too poor to buy firewood, you’re also too poor to buy furniture).
Recall that the GSEs are supposed to be “private”, and merely in “conservatorship” at the moment.
Well, if the illusions of that status were not already dashed by the open and unlimited cash-infusion lifeline from the Treasury (~$150 bln so far), this new role as stimulus piggybank seals the deal.
As a result, it will be that much more difficult to reform the GSEs into something with a separate, self-sustaining existence.
And as much as we at Implode hate all taxes, eliminating tax breaks on the super-rich would be preferable to coming up with the stimulus in this disgraceful fashion. As Fannie and Freddie are the housing market for the middle class, and are now all but officially nationalized, this is a middle class tax hike in all but name.
Count on Washington to always find a sleazy, back-door path to forge a reprehensible bi-partisan “deal” that actually screws the people rather than helps them.