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Clinton budget contains new $15 mortgage tax; 'Transaction fee' aims to update flood maps; Nation's Housing


TUCKED AWAY in the fine print of the Clinton administration's fiscal 2000 budget is a new tax next year on more than 5 million home mortgage borrowers and those who refinance.

You probably haven't read or heard about the proposed new home financing tax yet because it's buried in a place where most people in the housing field wouldn't expect to find it -- the new budget of the Federal Emergency Management Agency (FEMA). You might miss it, too, because the White House doesn't call it a tax. It's a "mortgage transaction fee."

But it would function precisely like a federal tax, adding $15 onto the closing costs of what FEMA estimates to be 5.2 million mortgage borrowers in the coming fiscal year. The tax would be the same $15 on buyers and those who refinance alike, no matter the size of the mortgage or the location of the house.

The bulk of the money raised -- well over $300 million during the next five years -- would go for what appears to be a noncontroversial cause: The updating and modernization of flood zone hazard maps that are used nationwide by lenders to identify property damage risks based on 100-year flood determinations. Federally regulated lenders are required by law to obtain a flood zone certification for every property before closing the mortgage. Properties in high-risk flood zones usually must obtain flood insurance. New home building permits also require f lood certifications.

FEMA, which administers the national flood insurance fund and disseminates flood zone maps, says many of the current maps are outdated, inaccurate and require conversion from paper to digital format. To accomplish this, the FEMA budget proposes a "one-time" $5 million appropriation for the "Flood Map Modernization Fund."

On top of that, the budget envisions a new "mortgage transaction fee to support the multiyear flood map modernization activities that represent a shift from taxpayer-funded disaster aid toward self-protection."

At its core, the transaction fee is a user fee aimed at mortgage lenders.

Though operational details are still scarce, the new fee would be collected from lenders making home loans. But FEMA staff members confirmed that they recognize that lenders will simply pass the new expense on to their own customers, homebuyers and those refinancing.

FEMA estimates that the new fee would put $58.5 million in its coffers in the first year alone.

The actual charges to affected lenders and mortgage borrowers would come to about $78 million, according to Jane Bullock, FEMA's chief of staff. But because borrowers could deduct the fee on their federal taxes, the Treasury would cut 25 percent off that amount before allocating money to FEMA for map improvements -- a sort of in-house tax levied on the user-tax proceeds. This would leave FEMA with a net $58.5 million from the $78 million actually paid by mortgage borrowers.

Though most banking and mortgage trade groups hadn't seen the details of the Clinton proposal last week, initial reaction was distinctly negative. Brian Smith, policy and economic research director for America's Community Bankers, a major thrift institution group, said, "We certainly support the objective of better flood zone maps, but you don't have to [penalize] homebuyers to accomplish that."

Smith pointed out that modest as it may appear, a flat $15 levy on everyone financing a home is regressive -- requiring borrowers taking smaller loans for lower-cost homes to pay a higher percentage tax than borrowers with jumbo mortgages on luxury houses.

Other Capitol Hill analysts argued that maintaining flood maps is a basic statutory function of FEMA, and should be paid through congressional appropriations, just as virtually all federal departments fund their program activities.

Critics also said that the proposal essentially asks people who live in areas without flood hazards to pay for a program that mainly benefits lenders making mortgages to people who live in or near flood hazards.

Michael Buckley, the head of FEMA's flood mapping program, said the need for funds to update and digitize the agency's existing maps is undeniable.

"Lenders and consumers need good maps" to evaluate changing flood hazard risks "throughout the country," he said. An advisory commission involving representatives of lending and engineering groups recently documented the urgent need for modernization and improvement of the maps, according to Buckley. "No one really disputes this."

The question for Congress this year, then, will be: Do you hit every homebuyer and those refinancing a home with still another closing cost -- a $15 federal tax -- to pay for the flood maps FEMA is supposed to maintain? Or do you fund FEMA's essential activities like any other agency's -- appropriating the necessary dollars out of the federal budget?

The odds are that Congress will opt for the latter.

Kenneth R. Harney is a syndicated columnist. Send letters care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071.

Pub Date: 2/14/99

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