Obama May Revive Bid to Limit Mortgage Tax Break

it seems more and more likely that something will happen on this front - and you can guarantee it will disproportionately affect high value RE cities like NYC. Even more reason to wait and see - buy when rates are 8% AND there is no more deduction.......

It is very hard to justify a scenario of increased NYC home prices, reduction/elimination of tax break, and higher interest rates all occuring at the same time...something will give

why doesnt obama do something positive like attempt to increase savings rates at banks from .25% to 2 or 3%....we did bail these institutions out and this is what you get back ie .25%...RIDICULOUS!

The "help" is exactly the problem.

When they can get money for 0%, why would they pay you 1% for it?

As for the OP, didn't think this years ago, but it looks like this is coming closer to reality.

My guess is, the easiest way to sell this is just to cap the deduction so "millionaires" don't get it. Saying $250k sounds reasonable (that number does sound familiar).

Anyone ask the two 800 pound Gorillaas what they think(the NAR the National Associaiton of Home Builders).
I don't see this happening. But do agee mortgage deduction should be eliminated.

Running out of big hammers.

Im all for it.

at the very least the limit will be reduced to $500k or some such threshold that aligns itself with the interests of 99% of taxpayers....yet keeps the 800 lb gorillas happy.

They could limit it to the primary residence and not use the highest tax rate... Limits the value of the deduction for top bracket people. Imagine a top bracket earner who gets a rent stabilized apt, and then gets a deduction on a summer home. It could happen.

Here come the Liberals and the Housing interests
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The objections raised by some liberal groups offered a preview of the coming battle over the housing plan, which will be joined by an array of interest groups, including bankers, builders and the real estate brokers, that have a stake in how the nation's $11 trillion housing finance system is reshaped.

Real estate agents and home builders oppose policies that would shrink the federal subsidy for housing. Small banks don't want to see the government overly reduce its role in the housing market, for fear that the largest banks could then dominate the arena.

But the most vocal concerns Friday were raised by some of the same groups that had cheered Obama last year for overhauling the nation's financial regulations and establishing the Consumer Financial Protection Bureau.

"The administration today has laid out a series of options that could lead to the abandonment of a nearly 70-year commitment to affordable homeownership by working American families," said Barry Zigas, director of housing policy for the Consumer Federation of America.

Most economists agree that withdrawing this support would probably lead to an increase in mortgage rates, though there is considerable debate about how much more expensive home loans would become.

A coalition of progressive groups, including the National Council of La Raza and the NAACP, released a statement Friday expressing concern about all three proposals, saying the first two "would entirely fail" to meet the goal of ensuring that families have access to credit and "will instead marginalize communities of color."

This dismay was echoed by liberal members of Congress on Friday.

"My underlying concern is that they may radically increase the cost of homeownership, and housing in general, over the coming years," said Rep. Maxine Waters (Calif.), the top Democrat on the House panel overseeing housing finance.

http://www.washingtonpost.com/wp-dyn/content/article/2011/02/11/AR2011021106421.html?sid=ST2011021102202

the mortgage intrest deduction should never have happened. They should do away with it ASAP. Also most of the rich people i know in NYC pay cash so i think this would have less an affect on nyc.

define rich in nyc and then you will probably adjust your answer. If you want to state those making $5 million or a more a year may have paid cash fine. But lets say they were to try and define rich as a couple making $250k a year, please tell me how many people you know who paid cash for their million dollar apartment. The fact is that if you do away with the deduction it will affect a great amount of homeowners in NYC and cause an immediate decrease in value as the affordability changes dramatically.

Assume someone has a 1,000,000 mortgage at 5%, they are paying $50,000 a year in mortgage interest. If they are in the 28% bracket they are receiving a $14,000 tax break, about $1200 per month.

So while most people may pay a bit more to own, this will increase it further and cause people to balk at taking on that sort of mortgage. It would mean that they need to make up for the tax break by having a lower mortgage. So either they buy less of an apartment or the price of the apartment they are looking to buy has to come down in value.

In this case the $1 million mortgage needs to come down to about $750k or a bit less to decrease interest paid by the tax break loss.

Agreed, However Real Estate interests would rather have the Federal government provide subsidies to make homes affordable to buy as opposed to removing the subsidies which would have the affect of reducing home prices and making them affordable.

I do not disagree, however fixing the system does not mean hurting those who already own, we are already trying to recover from those already underwater, why push more people into that category.

Just so we agree, the federal subsidies don't benefit the buyer but the seller.

Well if you assume a lot of the buying is those who already own, it is benefitting both. If we assume that it is a brand new home owner, then yes it only helps the seller, the buyer would love if the price was much lower even if it meant not mortgage interest deduction.

if you cant afford to buy without the tax break then you should not be owning an apt or house Mikev. If it hurts you that bad then that is proof that the bid under the housing market is still way too high.

I am still able to afford if the break was to go away, but that is not the point. The values of the apartments are based on overall costs versus renting. If you change the deductibility you change the formula and thus change the value of the home.

Whether i have excess cash to cover the difference is not the point of this discussion. When people are valuing what to buy and what they are able to afford the deduction plays into the formula.

And there is no argument that housing prices are high, but taking away the deduction does not really accomplish anything but causing many people to lose equity in their homes and we are not talking about just the "rich" now.

...and that is why they will reduce the cap but not eliminate the subsidy - from a national perspective, who gives a flying f**k about manhattan...

middleclass,

If the whole point is to save money for the government, the CAP would have to be pretty low. Something like 250k which is above the average USA house price.

Hard to argue against a 250K cap unless u live in CA or NY. The politicians don't have the balls to do this anyway unless they are forced (i.e USA loosing AAA rating)

"...taking away the deduction does not really accomplish anything but causing many people to lose equity in their homes..."

Yes, the government is only allow to inflate real estate prices because the ultimate plan is to sell every single housing unit to a foreign buyer. Bring back the buyer credit and cut out the illusions that banks are the ones really giving out home loans and just give out zero interest / zero downpayment loans directly.

This will hammer the re market.

One more reason NOT to buy. Lets add'em up...
1. increase mortage rate
2. eliminate the tax benifit
3. Do this during a time of unpresidented inventory excess
4. Do this during a time when residential re is what's on the banks ballance sheet.

You know...I might just end up living large if this keeps up.

balance, whoopos

One more reason NOT to buy. Lets add'em up...
1. increase mortage rate
2. eliminate the tax benifit
3. Do this during a time of unpresidented inventory excess
4. Do this during a time when residential re is what's on the banks ballance sheet.

These are all known things. Makes it a good time to hunt for bargains. Less competition and some worried sellers.

The government must also help ensure that all Americans have access to quality housing that
they can afford. This does not mean our goal is for all Americans to be homeowners. We should
continue to provide targeted and effective support to families with the financial capacity and
desire to own a home, but who are underserved by the private market, as well as a range of
options for Americans who rent their homes.

http://www.treasury.gov/initiatives/Documents/Reforming%20America%27s%20Housing%20Finance%20Market.pdf

'These are all known things. Makes it a good time to hunt for bargains. Less competition and some worried sellers.'

True

The question is when to look to buy.
If you're going to drop suitcase full of cash on a property as a down payment you want to be reasonably sure that the money trapped in the house will withstand inflationary pressures over time. Entry into the market is for some like me an issue of timing. I will admit that my patience is working against me.

Wouldn't the deductions for current owners have to be grandfathered in? Or at least very slowly phased out? Current owners essentially had a tacit agreement with the govt. Most owners depend on the deductions to meet monthly payments. If they were not grandfathered there would be another huge wave of foreclosures. I believe Barney Frank weighed in on this issue about a year ago. He said they would never go back on current homeowners as I recall -- the deduction is built into the house payment plans of millions of voters.

The tax code changes every year. It would be easy to cap the benefit to conforming mortgages on primary residences. If you have a million dollar mortgage, you don't need Uncle Sam to hold your hand.

got rid of the $166,800 itemized bite-back for 2010

The goal is to penalize New York by redicing the value of real estate? How is that good except for those who don't own?

Silly me, I just figured it out.

building bigger federal governement by increasing taxes and eliminating tax breaks......chalk another one up to obama and his fellow socialists..

Mortgage interest is an itemized deduction. Itemized deductions are phased out for higher income levels.

It is already a limited deduction and often completely disallowed for those making higher incomes.

If you were wondering why those with cash pay cash, it's because they don't get the deduction at all. Do the math some time: if you carry a mortgage for 30 years you will ultimately pay 3 times the cost of the property. That one million condo will cost three million. I have friends with enough cash to buy outright. They still have a mortgage because they "like the deduction". I don't get it, have they never actually done their own taxes? He's an emerging markets fund manager, so WTF?

The Mortgage Interest Deduction facilitates tax arbitrage among the top income earners who play off the mortgage deduction and the tax free status of muni bond payments.

So let's think about people who can take the deduction: let's say you pay $60,000 a year in interest. At the highest tax bracket you are saving $20k in taxes. Meanwhile, you are still out $40k. People often talk about mortgage interest as though they are "saving" all of it, but they are obviously math impaired.

Taking the deduction away will just cause panic among the math-impaired masses, and no politician can be that stupid. Can they?

They take out a mortgage because it is an alternative to margin debt.

it is a calculation. If you borrow the million, that frees up cash for investment. There are many who have invested in the past 18 months who have doubled their money in the market - higher end earners don't need to be in fixed income. So 40K is irrelevant.

Also, there are many who have over reached in their RE purchases and depend on that deduction. Their monthlies are critical to their calculations. If the deduction disappears, there will be a new wave of owners who stop paying mortgages as they prepare to walk away. So far, the calculation to stay put and stop paying has been very lucrative. If a new wave of foreclosures continue to cripple the system, it is likely that calculation will continue to pay off.

Of course anyone with a mortgage assumed that each year the deduction would go away as the their mortgage payment included more principal and less interest. I agree the mortgage deduction makes debt less costly, but to buy a home needing the deduction to cover the cash flow makes no sense.

Add to "why not to buy"
5. significant increases in RE tax burden and more to come
6. increase inflationary pressures - oil, commodities - monthly carrying costs up
7. change in tax laws and how residency is assessed - pied a terre and investor owners now paying NYS & NYC income taxes
8. knowing that a housing bubble like the most recent one is historically an uncommon occurrence - another 50 years??

There should be an individual mandate in the housing market. All Americans over the age of 21 should be required by law to purchase a house or go to prison.

The mortgage interest deduction "phase out" (meaning that as adjustible income increases, the amount of interest deductible is lessened) was eliminated for tax year 2010. That's the law currently. Given that this is a provision that is in-play politically, it seems wise to not assume that it will be there for financial calculations. So as public policy (manipulating behavior through the tax code) this is a total failure. Much like the 1-year, 2% point cut in SocSecu taxes. Just leaving money in the hands of the most wealthy, while not encouraging them to do much of anything in particular. Not necessarily a bad thing.

I think it's fair to say that the mortgage interest deduction is of interest only to the upper middle class: they buy relatively expensive homes and don't face much risk of losing their deduction to the shifting winds of politics. Obama had a chance to eliminate this deduction: embrace his presidential commission's serious debt reduction proposal. He took a pass. So I wouldn't expect this deduction to disappear any time soon.

Socialist
20 minutes ago
ignore this person
report abuse There should be an individual mandate in the housing market. All Americans over the age of 21 should be required by law to purchase a house or go to prison.

wasn't something like this a work policy in the soviet union? it was illegal not to have a job, any job. and there was no homelessness because the potential homeless would have been locked up before even getting to that point? there should be a house russian person permanently stationed here to answer questions at all times.

What kind of prison?
Max lock down? well that's not good for me, I'm too cute.
Minimum security? The kind of jail where they let you out for work but, have to come back each night to sleep and eat? That's ok...free rent in a fraternity type atmosphere...this I like.
Women's Prison...that might be ok but they have a fair number of mean lesbians that might make my stay less pleasant.
Then there's the gang thing. I'm in the SE Gang (represent). I don't how well that might work out in prison. The tattoos for the SE gang are kind of cool (Flamo and F'ktard) but I'm not ready for tattoos yet.

No prison - just an ankle bracelet - you must stay north of 96 St, or, if you choose, The County of Richmond.

2,787 open houses FLMAOz