Just before Christmas, the United States Congress passed a payroll tax cut bill with only 12 members of Congress actually in the building. The deed was done quickly and with the utmost efficiency – in fact, some of the legislation was not even written until after the bill had already passed. Any congressmen and –women who had gone home for the holidays had no time to return to vote either for or against the legislation, and everyone left after patting themselves on the back and assuring the public that this temporary two-month extension would quickly and easily be converted to a year’s extension in early 2012 – whether we want it or not. The payroll tax cut has been a controversial issue not just because House republicans chose this legislation as a sticking point (for a while, at least), but also because the two-month cut alone will require decades of additional fees on mortgages insured or owned by Fannie Mae and Freddie Mac – entities which allegedly are scheduled for major overhaul or even “unwinding” in the coming year. So the whole thing is a little confusing and is ultimately going to cost homeowners who are already struggling to pay their mortgage payments even more money.

But how much money is this thing really going to cost? Is there any chance it’s worth it? You decide:

When Congress agreed to finance the two-month extension, they decided to do this by raising the guarantee fee charged by Fannie and Freddie to loan originators. This fee will be passed along to borrowers by raising interest rates about a tenth of a percent and by raising the annual insurance premiums on FHA loans, also by a tenth of a percent[1]. These rates would also be applied to refinanced loans. This move will likely result in borrowers paying a few thousand dollars more over the life of their loan than they would otherwise[2]. However, that is not the only issue. By linking GSE loans and FHA loans to the payroll tax cut for decades into the future, Congress has made it very unlikely that the GSEs will be reformed or ever leave federal conservatorship at all.

So you decide: Is the payroll tax cut worth it? Should it have been passed and, if so, should it be funded using the current constructs?

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[1] http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/12/25/BUSC1MGD32.DTL&type=business

[2] http://www.mortgagenewsdaily.com/channels/pipelinepress/12232011-men-living-with-parents-g-fee.aspx