Category → Real Estate Taxes
Quit Being Politically Correct By Calling it a “G” Fee, Say “Hello!” to Our New National Mortgage Tax!
The New Year has dawned and we can all rest peacefully during the months of January and February with the knowledge that HR 3765 is in firmly in place! For those of you that may be unaware, HR 3765 is the all important legislation that was passed to extend the payroll tax cut for 2 months. During these 2 months, our esteemed legislators will figure out a way to extend and finance the extension through the end of the year. Based on past experiences with this type of tactic (read budget deficit reduction) we can only imagine how entertaining the next 2 months will be!! But first, let’s take a look at how they financed the 2 month extension ……………
To make it clear and simple before the longer winded explanation, let me start by saying that our legislators slipped one by you during the holiday season! In essence, they have now implemented a National Mortgage Tax that will be in place in perpetuity as a means to pay for the 2 month extension. That’s right, they slipped one to you and you slept right through it!
This so called National Mortgage Tax (I’ll use NMT going forward) is disguised under the name of Guarantee Fee. You see, the bill mandates that all loans backed by Fannie Mae or Freddie Mac (87% of the conventional loan market in the US) are to be levied a guarantee fee of 10 basis points (.10) and that this fee will be a pass through from Fannie and Freddie to the US Treasury Department. What it means as far as your next mortgage is concerned is an increase of .125% in rate or and increase in .50% in point cost for the same rate you would have received for less. In other words, the before and after looks something like this:
Before the “G” Fee
4.000% @ 0.000 points
After the “G” Fee
4.000% @ 0.5000 points OR
4.125% @ 0.000 points
Either way, from this point forward and forever, the government will be collecting a TAX (they don’t call it that) in the form of this guarantee fee on any person that obtains a purchase or refinance mortgage that is backed by Fannie Mae or Freddie Mac. As I mentioned earlier, this currently represents 87% of all conventional mortgages funded in the US.
The fee is designed to be in place for 10 years (again to finance 2 months!) but rest assured that the check book is now open and this fee is never going away. The fee is already being priced into the market and while we have seen a strong rally on the MBS market it has not translated into lower rates as a result of this new fee. In dollars and sense, for a $400,000 mortgage you can either choose an additional $2,000 in cost or a monthly payment increase of $28.94 compared to the “pre” “g” fee world. That monthly payment difference equates to $10,418.40 out of pocket on a 30 year loan!
The speculation with all of this is that now that the portal for financing government costs or “tax cuts” is open with Fannie and Freddie, we will see more of this type of structure going forward. So a 2 month tax cut is really a permanent tax hike that is disguised by a different name! Lastly, the rumor mill also has it that the monthly MI factor on FHA loans will increase by the same 10 bps so consumers are not incented to choose FHA over conforming and upset the current balance of power between the 2 loan types.
So here is to 2012 and HR 3765! I can’t wait to see what they come up with as a way to finance the payroll tax cut for the remainder of the year!
Monday Minutia and The Week To Come
This Week starts Monday with Treasury selling $35B of 2 yr notes , the first of three auctions this week totaling $99B and the last auctions before QE 2 ends on Thursday. Economic data Monday, personal income and spending. Later this week manufacturing reports, the ISM and Chicago purchasing mgrs index; recent data on manufacturing has been softening. The stock market continues to suffer under the increasing cloud of the economy back-sliding. As the week moves on trading will thin out going into a long week-end. Normally employment is out on the first Friday of each month, but not when the first Friday is ton the 1st of the month; that data comes on the 8th of July. Not a lot of data this week, the bond market will take its direction from how equity markets perform. Greek lawmakers start a three day meeting on Monday in an attempt to pass spending cuts ($111B) to meet demands from the IMF and EU for a bailout deal.
Treasuries and mortgages opened flat this morning with the stock indexes also about unchanged. At 8:30 May personal income and spending; income up 0.3% and spending unchanged. The core PCE up a little, +0.3%; May personal savings rate +5.0% up frm +4.9% in April. Consumers still saving, a good thing overall but further indication that consumer spending isn’t going to be the driver of any potential economic recovery. Historically personal spending accounted for 70% of GDP, now any improvement in the economy has to come from exports and in our view that is a huge hill to climb. The weak spending added a little support to the bond and mortgage markets and pushed stock indexes into the red.
This afternoon Treasury will auction $35B of 2 yr notes, the first of three auctions this week to borrow a total of $99B and the last of Treasury auctions before the end of QE 2 on Thursday. The question now is, with QE ending will interest rates remain at these low levels as the Fed exits? For the last six months the Fed has purchased the equivalent of about 60% of all Treasury borrowing in the period.
Greece begins three days of debate in its parliament to approve spending cuts of $111B to trigger the IMF and EU package approved last week and keep Greece from defaulting. Greek, Portuguese and Irish 10-year bonds declined, driving up the extra yield investors demand to hold the securities instead of benchmark German bunds. The debt crisis that is spread all over Europe’s second tier countries and is one key driver keeping US interest rates low and the US stock market sliding.
This Week’s Economic Calendar:
Monday;
8:30 May personal income and spending (as reported +0.3% on income , spending unchanged)
1:00 pm $35B 2 yr note auction
Tuesday;
9:00 am Case/Shiller Apr 20 city home prices (-3.9%)
10:00 am June consumer confidence index (60.7 frm 60.8)
1:00 pm $35B 5 yr note auction
Wednesday;
7:00 am weekly MBA mortgage applications
10:00 am NAR May pending home sales (+0.7%)
1:00 pm $29B 7 yr note auction
Thursday;
8:30 am weekly jobless claims (-8K to 421K; con’t claims 3.70 mil frm 3.697 mil)
9:45 am June Chicago purchasing mgrs index (53.8 frm 56.6)
Friday;
9:55 am U. of Michigan final June consumer sentiment index (71.8 unch)
10:00 am June ISM Nat’l manufacturing index (51.3 frm 53.5—under 50 is considered contraction)
3:00 pm June auto and truck sales
Crude oil continuing its decline this morning on increasing belief the US economy is going to slip more and in China its economy also slowing. The IEA and the Obama Administration released 60 mil barrels of oil from the strategic reserves last week (30 mil from the US reserves); the IEA saying it will release more if necessary. Meanwhile gasoline prices continue to fall. It is a moving target the amount of declines in given areas of the country; here in Indianapolis gas has fallen from $4.22/gal a few weeks ago to $3.30 yesterday. Will the decline increase consumer discretionary spending?
The DJIA opened +20 at 9:30, the 10 yr note +2/32 and mortgage prices at 9:30 unch.
Slowly interest rates continue to decline, likely more this week with no firm resolution on Greek debt plans until Thursday. Demonstrations will go on all week in Athens as politicians debate spending cuts that have citizens revolting and protesting. It is likely the government will meet the demands of the IMF and EU with spending cuts, but until the ink is dry on the legislation the uncertainty will be a continuing positive for US bond markets.
Thrusday Trivia
A little better start today in the rate markets while the stock indexes early were pointing to another better open at 9:30. More earnings reports late yesterday coming better than expected. At 8:30 weekly jobless claims were widely expected to have declined 22K after increasing 27K the prior week; claims were down 13K to 403K, continuing claims declined to 3.695 mil frm 3.702 mil the week before. The 4 wk average on claims at 399K frm 396.7K. Claims remain elevated showing little progress recently after falling in Feb and Jan. A week ago the NFIB reported small business optimism, after improving since last Oct, fell to the level prior to last Oct; small businesses are the engine for employment, without hiring in that sector unemployment is unlikely to decline much.
Most Q1 earnings reports are hitting better than expected, driving the equity markets higher but having little if any impact in the employment sector. No job growth, no improvement in the housing sector, $4.00+ gas prices, food prices increasing—-it doesn’t matter as long as investors large and small see their net worth increase. The US approaching bankruptcy with the political outlook less than favorable that a serious budget reduction plan will emerge—-who cares? S&P lowering US debt to negative from stable has generally been pushed to the background and dismissed; the consensus among traders, investors, politicians, analysts and economists is still denial, the US will never lose its AAA credit rating. After all this is the strongest economy and nation in the world—–or is it? Republicans don’t want to increase taxes, Democrats don’t want to cut spending; if both parties don’t get close to being on the same page soon we will wake on day with interest rates much higher, the dollar (already falling hard) will not be the reserve currency of the world and the US will be a follower and not a leader. Hard to imagine, but we are closer than most think and many won’t admit outwardly.
At 9:30 the DJIA opened +16, 10 yr note +3/32 and mortgage prices +2/32 (.06 bp).
At 10:00 April Philly Fed business index, expected to have declined to 32.9 frm 43.4, as reported the index plunged to 18.5; the new orders component 18.8 frm 40.3, employment 12.3 frm 18.2 and prices pd for materials at 57.1 frm 63.8. The decline in the index took the stock market down initially and boosted prices in the rate markets. The decline in the overall index supports the growing concern that the economy isn’t as strong as had been thought as recently as two weeks ago. (any index read over zeros is considered expansion)
March leading economic indicators at 10:00 expected +0.2% jumped 0.4%.
The FHFA housing price index for Feb declined 1.6%, no surprise there.
This is the end of the week with market closed tomorrow. Next week Treasury will auction an estimated $99B of notes and the FOMC meeting on Wednesday. For the first time the Fed will release its policy statement at 12:30 then at 2:15 Fed chief will hold a news conference allowing questions and opening more details about the meeting and the intent of the generally short policy statement. Given recent events and debates and posturing over the coming budget battle the Fed will have the opportunity to say its piece in a manner unlike we haven’t had prior to this meeting. The auctions and the FOMC meeting may keep markets steady at present levels.
Fight Your Real Estate Property Tax Bill Without A Lawyer
More than 60 percent of U.S. homes are “over-assessed”, says an industry trade group. Homeowners pay more in property taxes than they otherwise should have to. You might be one of them.
Have you considered fighting your real estate tax bill?
In this 4-minute piece from The Today Show, you’ll learn:
- When to file your tax bill dispute for the best chances of winning
- How to pull your “property card” and check for tax bill-raising errors
- What to do if the taxing authority turns down your request
Most importantly, you’ll learn that don’t need to hire an attorney to fight your tax bill. You just need to be prepared. Do your research and make your case. It’s estimated that nearly half of all contesting homeowners are successful.