To usher in the New Year, Congress naturally helped itself to yet another break, while leaving the economy to fester on the newest roadblock to recovery: self-inflicted bloated interest rates, suddenly apparent in the rush to lock loans for a February close of escrow. In an effort to discover the source of these most unwelcome adjustments and the subsequent unpleasantries in explaining it all to borrowers, I dug deep in some unlikely places to uncover the truth. And not surprisingly, the truth hurts.
Believe it or not, the housing and lending industry is now the unlikely and unwilling sponsor of the payroll tax extension. Bitter pill though it may be to swallow, the painful truth is that Congress lacked the spine and the creativity to stay in session long enough to fund and resolve it any other way. In the FHFA press release dated December 29, it was announced that there were 58 other tax code benefits that Congress failed to renew. These credits include, but are not limited, to tax deductions on Private Mortgage Insurance (including FHA), discontinuation of credits for energy efficient homes, to name a few. All of which would have directly and positively impacted the continued, if slow, comeback of the housing and lending industry. But, this being an election cycle, the clamoring about the payroll tax could not be ignored. So, in true Washington form, the bill HR 3765 Title IV had to be signed in-a-hurry, regardless of which existing program was being cannibalized in doing so. In fact, it went straight from the house to the President bypassing the Senate altogether. In this case, the easy target was social security, already a victim of severe abuse, and already in need of replenishment. So, as we have come to expect from Congress, they rushed to their holiday recess (not to be confused with their monthly recess, fall recess, summer recess, and general random recesses that occur at the most inopportune times), while we were all spending our disposable income, doing our part to improve the economy, and looking the other way, focusing our fragile hopes on a New year, potentially more prosperous than 2011.
It is diabolical in its own right: the only way to pass the bill without Republican alarm and subsequent rejection (raising taxes), was to raise interest rates, further placing the burden on the consumer, and our one last hope: the housing market.
In an environment in which Loan Officers or Lenders are likely to be blamed for higher rates, the mortgage industry needs to backpedal and explain why mortgage rates are becoming 1/8th to1/2 of a percent higher than they were a week ago. And in a time when housing was starting to show some signs of improvements, hiking mortgage rates will only decrease the current affordability rates for the average home buyer currently enjoys. We all know that home prices are at 2002 levels and interest rates are at record lows. The HUGE elephant in the room remains the ridiculously strict guidelines that are not allowing the majority of US consumers to achieve the American dream. This latest blockade only serves to stall the economy further, and threatens to undo any progress achieved since 2007, particularly with the unthinkable removal of tax-deductable private mortgage insurance, an issue so frightening that it merits its own post. Stay tuned…
