Virginia homeowners looking to refinance their mortgages would save a hefty fee if legislation pending before the General Assembly is approved, but Fairfax County officials fighting its passage warn that the change would rip another $10 million out of an already tight budget. Under current law, homeowners must return to their original lender to refinance or pay the recordation tax again. In Virginia, that tax is 33 1/3 cents per $100 of loan value — or about $1,000 on a $300,000 loan. Seventy-five percent of the tax revenue goes to the state and 25 percent to the county. “We’re in a situation where people are refinancing their house and they’re having to pay the same tax again — that’s not right,” said Del. Jackson Miller, R-Prince William.
The change would be a boon to homeowners but a financial blow to Fairfax, said Susan Mitterader, the county’s legislative liaison in Richmond. Already, the deterioration of the housing market has cut the county’s recordation tax revenue in half, she said.
“We’re sympathetic with the fact the law needs a fix,” Mitterader said. “But we’re asking lawmakers to make the bill revenue-neutral,” which would preserve the $8 million to $10 million the county collects annually. One option could be to have everyone pay the tax when they refinance, but at a lower rate.
The original rule for refinancing was enacted in 1972, and the mortgage industry has changed drastically since then. With deregulation in the 1980s, banks started to package and sell the mortgage notes to investors. Today it is common for a homeowner’s mortgage holder to change.
Some Virginia counties are lenient with those who refinance, while others “accept nothing short of walking up to the counter with the person who owns the note,” said Jay DeBoer, vice president for law and policy at the Virginia Association of Realtors.
DeBoer said the original intent of the state’s taxation policy was to pay the tax on the loan only once, regardless of the impact on local budgets. Even so, lawmakers are likely to have to resolve the legislation’s impact on county budgets before it gains General Assembly approval.
“We’ve had broad support,” he said. “But there is legitimate concern about the cost of this. I don’t think anyone has a true grasp of that.”
