As the Obama administration acts to wind down the role of mortgage behemoths Fannie Mae and Freddie Mac, the loss of the mortgage interest deduction may come as result.
“Realtors, homebuilders, everybody who has a vested interest in preserving this (mortgage interest deduction), have a very strong voice on Capitol Hill,” Guy Cecala, publisher of Inside Mortgage Finance, told www.CharlotteObserver.com last month. “They’ve done a pretty good job of keeping everybody’s hands off of it.”
The mortgage interest deduction policy offers homeowners a tax break on mortgage interest payments. Say, for example, that a homeowners makes $100,000 a year, and paid $10,000 in mortgage interest that year, then they would only be taxed by the IRS on $90,000.
Groups like California-based GreenLining.org propose wiping out the deduction policy. Instead, the group suggests middle-to-low income households would receive a tax credit of $5,000, as opposed to the deductible that is applicable to all households.
“Recent progress has been made in bringing stability to the housing market and any changes to the (mortgage-interest deduction) now or in the future could critically erode home prices and the value of homes by as much as 15 percent,” National Association of Realtors President Ron Phipps said in a recent press release.
For more on the mortgage interest reduction, visit www.RisMedia.com.
Getting rid of the mortgage interest credit would be an outrage! Would I sell my house and rent somewhere else? Absolutely. Who would buy?…no-one I know. Remind me what happened or what is happening to the American Dream?
It’s much worse than a 15% downside if the MID goes away. It will reshape, ie devastate, the housing and construction industries, as renting become more desireable again, as it was in the US, and as it is in many other countries. Result will be more large rental properties/complexes, and far fewer homes. It wouldn’t surprise me if home prices fell 50% or more, inflation adjusted, especially if rates continue to go up.
If the government really wants to adjust behavior do the following:
1. Grandfather in the deduction for current home owners.
2. Allow the deduction for those with 50% equity in their home.
All the sudden you have individuals who are truly home owners (e.g. they own more in their home than the bank). You also have carrot for people to not carry big home mortgages, making it easier to get to the 50% equity.
If the government really wants to adjust behavior do the following:
1. Grandfather in the deduction for current home owners.
2. In the future, only allow the deduction for those with 50% equity in their home.
All the sudden there is a incentive mechanism for individuals who are truly home owners (e.g. they own more in their home than the bank). You also have carrot for people to not carry big home mortgages, making it easier to get to the 50% equity.
This will help make America a nation of owners not borrowers.