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Industry backs bill to prevent g-fee raids

Last year, the mortgage industry fought and derailed a proposal to use guarantee fees (g-fees) collected by Fannie Mae and Freddie Mac to fund highway projects.

Fearing future g-fee raids, the industry's largest trade groups now want Congress to permanently take g-fees off the table as a potential funding source.   

GfeeThe Risk Management and Homeowner Stability Act of 2017, which was introduced last month by U.S. Reps. Mark Sanford, R-South Carolina, and Brad Sherman, D-California, specifies that g-fees could only be used to insure against the credit risk of home mortgages. The bill also contains an exception that would allow g-fees to be used to fund reforms to the secondary mortgage market.

The Mortgage Bankers Association, the American Bankers Association, the Independent Community Bankers of America (ICBA) and 10 other trade groups recently signed a letter in support of the bill.

Industry lobbyists say guarantee fees offer a tempting source of funding to make up for budget shortfalls. Unlike the gasoline tax and other visible taxes, few homeowners are aware of g-fees. A guarantee fee is collected by Fannie and Freddie from the lenders, who typically pass on that cost to borrowers in the form of a higher interest rate on affected mortgages. The fees are specifically intended to guarantee the mortgage-backed securities sold to investors, and to cover administrative costs related to securitizing the mortgages.

“Congress is always looking for revenue and the GSE g-fees are an easy target,” said Ron Haynie, ICBA’s senior vice president of mortgage finance policy.  

“ICBA is very concerned about congressional ‘pay-fors’ that take revenue from one source and use it to pay for something completely unrelated,” Haynie told Scotsman Guide News. “It’s bad policy.”

G-fees have been used one time before to fund the budget. In 2011, Congress raised g-fees by 10 basis points for a period of 10 years through 2021 to pay for a temporary payroll tax cut. Last year, U.S. Senate leaders proposed extending that increase for four years to raise $1.9 billion to make up for a hole in the transportation budget. The Senate abandoned that plan after heavy opposition from the industry.

Last year, a similar measure to prevent g-fee raids was introduced in the Senate Banking Committee under one section of the Jumpstart GSE Reform Act, but that bill was shelved.

“As for the bill’s chances, it’s hard to predict right now,” Haynie said.  


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