If you follow the political landscape at all, I'm sure that you were hearing during mid-December more than enough about the Payroll Tax Cut Extension that the Democrats in the Senate approved for two months, and the Republicans in the House were trying to get approved for a 12-month period.  President Obama and Harry Reid seemed to outmanuever John Boehner and the House had to fold and accept the shorter two-month extension.

One of the key items of all new tax cuts (or extensions of existing tax cuts) is that they are supposed to be "paid for".  Meaning if the revenue eliminated from the tax cuts is no longer available, then the money needs to come from some other source.

In this case, the source of the funds is coming by way of Freddie Mac (FHLMC) and Fannie Mae (FNMA).  The announcement included the following:    “On Dec. 23, 2011, President Obama signed into law the Temporary Payroll Tax Cut Continuation Act of 2011. Among its provisions, this new law directs the Federal Housing Finance Agency (FHFA) to increase guarantee fees charged by Fannie Mae and Freddie Mac (the Enterprises) by no less than 10 basis points from the average guarantee fees charged by these companies in 2011 on single-family mortgage-backed securities.

This requirement is effective immediately, meaning that the average guarantee fees charged in 2012 need be at least 10 basis points greater than the average guarantee fees charged in 2011 and that this increase be remitted to the U.S. Treasury, rather than retained as reserves by the Enterprises. The law also requires FHFA to determine a schedule for guarantee fee increases over a two-year period that must satisfy other requirements of the law.

To begin implementation of these requirements, President Obama directed Fannie Mae and Freddie Mac to announce before year-end to their seller-servicers that, effective April 1, 2012, the guarantee fee on all single-family residential mortgages shall increase by 10 basis points.

In early 2012, FHFA will further analyze whether additional guarantee fee increases are appropriate to ensure the new requirements are being met. FHFA will announce plans for further guarantee fee increases or other fee adjustments that will then be implemented gradually over the two-year implementation window, taking into consideration risk levels and conditions in financial markets. FHFA will monitor closely the increased guarantee fees imposed as a result of the new law throughout its effective period, which ends Oct. 1, 2021.”

What this means to you as a borrower is that despite any changes in the interest rates that are determined by market forces, you can expect the cost of borrowing to increase by at least 1/10th of one percent in fees.  That may not sound like a lot of money, but on a loan of $250,000 the increase cost will be $250 which is merely a distribution from borrowers to wage-earners who are receiving the benefit of the payroll tax holiday..  And the fee will most likely increase, since it is very rare for the cost of anything that the politicians approve to not be much higher than the original published estimate.

So, if you start hearing of higher interest rate and fee quotes in the near future, it may not be because the market is making a move upward.  It may only be because the politicians have identified a resource to use in the shell game of taxes, fees and cuts. 

After there were so many losses from the mortgage meltdown that the taxpayers had to step in and cover, there was a lot of discussion and apparent commitment to reduce the government's role in FHLMC and FNMA.  It does not look like there is any plan to disengage from government participation in FHLMC and FNMA if they are using the Government Sponsored Enterprises as a funding source for other shortfalls in the system of revenue collection.  It would have been nice to have more transparency in the process and not make costs to borrowers higher in order to help some other constituency.