Wednesday, February 08, 2012

Using Fannie and Freddie Guarantee Fees to Fund Further Extension of Payroll Tax Credit is Problematic Says Banking Industry

The banking industry has asked Congress not to further increase the credit risk guarantee fees (G-fees) levied by Fannie Mae and Freddie Mac as an offset for further extension of the payroll tax holiday. In a letter to Rep. Dave Camp and Senator Max Baucus, co-chairs of the Conference Committee on the Temporary Payroll Tax Cut Continuation Act, the American Bankers Association warned that the two government sponsored enterprises are in federal conservatorship, have flawed business models and thus are troubled vehicles on which to place the expectation of a long-term revenue stream. Further, more increases to the G-fees would complicate the already significant task of ending the conservatorship and enacting meaningful GSE reform.

The legislation enacted at the end of last year extending the payroll tax holiday for two months used a 10-basis-point increase in the G-fees for a period of ten years as an offset for the cost of extending the tax holiday, unemployment benefits, and Medicare reimbursements. Using any portion of the G-fees for this purpose creates a number of significant concerns. The ABA urged the conference committee not to consider the use of G-fees for any further extension of the payroll tax holiday or for any other purpose than the intended use of offsetting the risk associated with the guarantee being provided by Fannie Mae and Freddie Mac.