Mortgage Interest Deduction Under Attack

This cornerstone of American housing policy has been in place since the inception of the tax code in 1913 and supports the aspirations of families at all income levels to become home buyers.

Robbie Richmond - Keystone HomesPalm Coast, FL – June 16, 2011 – Today, the nation faces an unprecedented assault on housing that threatens to derail nearly 100 years of national policy promoting the value of homeownership, and the public remains largely unaware of the potential catastrophe that lies ahead:
  • A sharply limited availability of long-term, fixed-rate mortgages
  • A huge jump in the cost of mortgages
  • Minimum downpayments of 20 percent or more
  • A severe reduction in mortgage credit
One of the primary targets of this unjustified attack on housing is the mortgage interest deduction. This cornerstone of American housing policy has been in place since the inception of the tax code in 1913 and supports the aspirations of families at all income levels to become home buyers.
Although Americans overwhelmingly oppose any action by Congress to tamper with the mortgage interest deduction, according to the results of a recent poll conducted by the Republican and Democratic polling firms of Public Opinion Strategies and Lake Research Partners for the National Association of Home Builders, many lawmakers have expressed a willingness to eliminate or curtail this vital housing tax provision. Such a move would further depress home values, leaving more home owners with “underwater” mortgages larger than the value of their property and fueling even more foreclosures.
The polling also found that home owners and non-owners alike consider owning a home essential to the American Dream. An overwhelming 75 percent of those surveyed said that owning a home is worth the risk of the fluctuations in the market, 95 percent of the home owners said they are happy with their decision to own a home and 73 percent of renters said that owning a home is one of their goals.
Meanwhile, six federal agencies are proposing a national Qualified Residential Mortgage standard that would require a minimum 20 percent downpayment and other stricter qualifications, which would keep homeownership out of reach for most first-time home buyers and middle-class households. The National Association of Home Builders estimates that it would take 12 years for a typical family to save enough money for a 20 percent downpayment on a median-priced single-family home and other research has found it would take even longer.
Some members of Congress are actively pushing to abolish Fannie Mae and Freddie Mac and end the federal backstop for housing. Absent a federal role to help absorb market risk, private lenders would increase interest rates and fees on all types of available financing options. The 30-year, fixed-rate mortgage, the major housing finance tool for most Americans, would become increasingly scarce and much more costly, pricing many credit-worthy borrowers out of the marketplace.
Complicating the situation, the federal government is looking to trim back the Federal Housing Administration’s participation in the market, which would further limit the availability of low downpayment mortgages.
As policymakers debate the housing finance and budget issues that will impact job creation and future growth, they must understand the important role that housing plays in the U.S. economy. Building 100 average single-family homes generates more than 300 jobs and nearly $9 million in taxes and revenue for state, local and federal governments.
The federal proposals now under consideration would reverse national housing policies that have helped generations of American households to own their homes, enter the ranks of the middle-class, build strong and stable neighborhoods and communities and provide a steppingstone to greater long-term financial security.
For these reasons, it is important that policymakers be fully aware of the depth and breadth of housing’s many contributions to American society and that owning a home is a strong core value for most American households.

Robbie Richmond is the 2011 President of the Flagler Home Builders Association

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