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How will the payroll tax cut be paid for?

Mitchell Hartman Dec 23, 2011

Jeremy Hobson: Well if all goes according to plan today, the payroll tax cut that we’ve all been getting this year will be extended for another two months. Also included in the deal that House Republicans finally agreed to yesterday is an extension of unemployment benefits and Medicare reimbursements to doctors. How are lawmakers going to come up with the $33 billion all this is going to cost?

Here’s Marketplace’s Mitchell Hartman.

Mitchell Hartman: The extension’s paid for by increasing the fees that Fannie Mae, Freddie Mac and the Federal Housing Administration charge to private mortgage lenders, like banks. These fees are for guaranteeing mortgages for new home buyers and that’s who will ultimately foot the bill.

Which turns out to be not that big a deal, says Mark Zandi at Moody’s Analytics.

Mark Zandi: It doesn’t help, but it doesn’t have a large impact because it only adds $10 to $12 to the average monthly payment for a typical borrower.

And right now, the typical new borrower is getting a record-low interest rate, further softening the blow of higher mortgage fees.

But, says Zandi…

Zandi: This is a precedent that needs to be considered very carefully, because if Congress is going to use Fannie and Freddie to pay for things other than housing, they may try this again and that could be a problem down the road.

Fannie and Freddie got bailed out after huge losses in the financial crisis, and their future role in the housing market is still uncertain.

I’m Mitchell Hartman for Marketplace.

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