December 12 | GlobeSt

GSEs Get Roped into Payroll Tax Tug-of-War Proposals in Congress that would see an extension of the payroll tax cut offset by new revenue from agency financing fees may present new headwinds for the housing market. GlobeSt's Erika Morphy explains:

... the payroll tax rate is set to increase to 6.2% from its currently reduced 4.2%, in 2012. President Barack Obama has been campaigning hard on this issue, and while the two parties are divided as to how to pay for it, neither wants to be painted as responsible for raising taxes on middle and lower class Americans. The answer, according to the views of some in Congress, has become Fannie Mae and Freddie Mac ...

Dr Sam Chandan adds the following:

... at least since the advent of the GSEs, the long-term mortgage commitment rate has been almost perfectly correlated with the yield on comparable duration Treasuries. The relatively narrow spread between mortgage rates and the risk-free rate reflects a number of factors, including fees and transaction costs. A proposal that would increase the fees paid by banks to the agencies will necessarily raise financing costs by exerting upward pressure on those spreads ...

Read the full analysis of the Congressional proposals at the GlobeSt website.