Removing the Mortage Interest Deduction Will Help Housing Recover


By pazuzu   Follow   Tue, 27 Nov 2012, 12:49pm   1,752 views   18 comments
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By lowering prices back down into line with long term fundamental valuations.

Looks like progress ahead, start by capping it then removing this artificial price support entirely:

http://dealbook.nytimes.com/2012/11/26/mortgage-interest-deduction-once-a-sacred-cow-is-seen-as-vulnerable/?emc=eta1

A tax break that has long been untouchable could soon be in for some serious scrutiny.

Many home buyers deduct their mortgage interest when assessing their tax bill, a perk that has helped bolster the income of millions of families — and the broader housing market.

But as President Obama and Congress try to hash out a deal to reduce the budget deficit, the mortgage interest deduction will likely be part of the discussion.

Limits on a broad array of deductions could emerge in any budget deal. It is likely that any caps would be structured to aim at high-income households, and would diminish or end the mortgage tax break for many of those taxpayers.

“This is definitely a chance worth jumping for,” said Amir Sufi, a professor at the Booth School of Business at the University of Chicago. “For a fixed amount of revenue, it’s better to remove deductions than increase marginal tax rates.”

Such a move would be fiercely opposed by the real estate industry. The industry has played a crucial role in defending the tax break, even as other countries with high homeownership have phased it out.

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  1. Oxygen


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    1   12:51pm Tue 27 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike (1)  

  2. Patrick


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    2   12:53pm Tue 27 Nov 2012   Share   Quote   Permalink   Like (5)   Dislike (1)   Protected  

    I think eliminating the mortgage interest deduction is a dandy idea.

    If you just think about it for a while you'll realize that it doesn't help buyers at all. The price just gets bid up to negate the effect of the deduction. The only winners are the banks, who get to issue more mortgage debt and collect interest on it.

  3. Call it Crazy


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    3   1:18pm Tue 27 Nov 2012   Share   Quote   Permalink   Like   Dislike (1)  

    I disagree, I don't think it will help recovery... too many "sheep" still believe they are "saving" money with the so called interest deduction.

    Like it was said in a different forum "Spend $10. to save $2.49."

    Patrick says

    If you just think about it for a while you'll realize that it doesn't help buyers at all. The price just gets bid up to negate the effect of the deduction. The only winners are the banks, who get to issue more mortgage debt and collect interest on it.

    Exactly, plus it gives another "sales pitch" for the realtor to use to get you to "buy" versus "rent" (and take on MORE debt)...

  4. duckhead


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    4   3:16pm Tue 27 Nov 2012   Share   Quote   Permalink   Like (4)   Dislike  

    “I think eliminating the mortgage interest deduction is a dandy idea.” wha wha WHA WHATTT???? Are you people criminally insane!?!?!?!?! I am on the red phone to NAR MOTHERSHIP RIGHT NOW THIS SITE WILL BE SHUT DOWN you anti american anti housing anti dream miscreents. My god, let me talk some happy sense right now, please please just shut your eyes and buy buy buy houses, borrow whatever you can, rent them out you will be rich RICH I TELL YOU WAZZOOOKIBOOOKI!!!

  5. David Losh


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    5   3:32pm Tue 27 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    People would dump properties without the deduction, but most people see very little true benefit from the interest deduction.

    The market place would hit a blip, and move on.

    The pressure on housing prices needs to come from debt resolution, by foreclosure, bankruptcy, or debt forgiveness.

    The simplest thing would be for banks to have to make loans at market prices.

    If you own a home that is underwater the bank should take that loss. The bank made the loan, they are in the business of making loans, and they should take the loss, today.

    Banks should be forced to make loan modifications with cram downs.

  6. Patrick


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    6   3:41pm Tue 27 Nov 2012   Share   Quote   Permalink   Like   Dislike   Protected  

    David Losh says

    The simplest thing would be for banks to have to make loans at market prices.

    I would add that "market price" should be the price that can be paid using rent for that property.

    If buyers could always rent out their property to cover the mortgage, property taxes, and maintenance, there would be zero foreclosures.

  7. David Losh


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    7   3:55pm Tue 27 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike  

    Patrick says

    there would be zero foreclosures.

    That is exactly the point. Using sales data to appraise property lead to this mess. Buyer exhuberance is taking hold once again.

    Banks know better. Banks have a complete set of calculations that determines value for them. Unfortunately we hear way too much about a borrowers ability to pay than the actual value of the asset.

  8. Call it Crazy


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    8   3:55pm Tue 27 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    David Losh says

    If you own a home that is underwater the bank should take that loss. The bank made the loan, they are in the business of making loans, and they should take the loss, today.

    Banks should be forced to make loan modifications with cram downs.

    What about the people who were "responsible" when purchasing their house and Didn't over extend or HELOC the hell out of it. Where is their "bailout"??

    How about the ones who paid off their mortgage as agreed in the contract. Where's their "bailout"??

    Don't automatically assume that it's the bank's fault they are underwater... Nobody put a gun to their head and made them sign the note, they did it by their own free will!!

    Principle write-downs or loan mods are a BAD idea and not fair!!! Maybe you can write a check and help out all these underwater home owners!!

  9. David Losh


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    9   4:03pm Tue 27 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Call it Crazy says

    Nobody put a gun to their head and made them sign the note

    I'm always fascinated by people who defend bank behaviour.

    The banks got bailed out.

    No one got anything, other than the banks, who got Billions of dollars.

    How fair is that?

    How fair was it that some people followed the American Dream that had been fairly secure for generations, only to lose everything?

    Banks have departments that figure every angle. What the consumer never saw, but I think sees clearly now, is the price, or value of the asset had no bearing in the transaction. Notes were sold as fast as they were generated.

    Banks need much more regulation at the retail, residential level.

  10. Call it Crazy


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    10   4:10pm Tue 27 Nov 2012   Share   Quote   Permalink   Like (2)   Dislike  

    David Losh says

    I'm always fascinated by people who defend bank behaviour.

    Who's defending bank behaviour?? Not me? But to put the blame on the bank for a contract YOU signed, doesn't cut it.... They should take Personal Responsibility for the contract they signed.

    Just because your house lost value, you think people should be "bailed out"....

    Well then, since the car you bought lost value, should you be "bailed out"??
    Since the 60" flat screen you bought lost value, should you be "bailed-out"??
    Since the clothes you bought lost value, should you be "bailed-out"??

    But your house lost value, and you want to blame the bankers and be "bailed-out".....

    ...where does it end....

  11. David Losh


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    11   4:24pm Tue 27 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Call it Crazy says

    They should take Personal Responsibility for the contract they signed.

    Banks are refusing to take responsibility for the contracts they signed, they drafted, for an asset they had appraised, and you think we should all just pay for that?

    Why?

    There is no way in the world mom, dad, and the kids saw a global economic collapse coming, but the banks did. Banks knew fool well what they were doing, and cooking up.

    It's a debt bubble that we are all paying for.

    Banks got away clean by selling the worthless paper, then turned around and got a bail out from Congress.

    Now we have QE !, 2, and 3, so banks can make more money with those lower interest rates, and rampant speculation.

    Come on.

  12. Peter P


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    12   6:17pm Fri 30 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike  

    Removing government involvement from the mortgage industry would strengthen the housing market in the long run.

    I am open to eliminating mortgage deductions if tax rates are lowered to compensate.

    The government does not need more revenue. It needs to cut spending.

  13. HEY YOU


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    13   9:57pm Fri 30 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    I don't have any use for the NAR but at this point in time- “Until Congress introduces specific legislation, there’s nothing to say about any proposed changes to the mortgage interest deduction,” Gary Thomas,

  14. unstoppable


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    14   1:49am Sat 1 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    I'd love to see the whole mortgage deduction go the way of the dinosaur, but would be satisfied if it disappears for second homes. I think the NAR is going to have a hard time convincing joe six pack that tax brakes for beach houses are a good idea.

  15. Mark D


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    15   4:40am Sat 1 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    David Losh says

    There is no way in the world mom, dad, and the kids saw a global economic collapse coming, but the banks did. Banks knew fool well what they were doing, and cooking up.

    i agree that the banks had better knowledge of the market but what about the people who bought houses they couldn't afford or the people who didn't care to get a lawyer to go through their loan documents if they didn't understand them?

    they are equally guilty imo.

  16. David Losh


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    16   9:10am Sat 1 Dec 2012   Share   Quote   Permalink   Like (1)   Dislike  

    Mark D says

    they are equally guilty imo.

    Because they could afford the home if we had inflation, like we have had for decades, or even a century.

    It makes no difference really, the entire idea was for low income people to have the same opportunity to create wealth as those people who had money.

    What no one was told is that these Notes were sold, then packaged, and sold again as securities backed by mortgages that I would have thought were based on actual property values.

    Banks didn't care about the value of the property. As a matter of fact they were pushing the price of property up by lending far in excess of the value.

    Banks are supposed to play by the rules of the game, no one else has to.

    Banks lend on the cash value of the property, and if something goes wrong the bank sells the property at the court house auction, and is made almost whole.

    What happened to that foreclosure system? That's the question.

    The foreclosure system isn't working because the price of the mortgage is far in excess of value.

    The consumer is a bit player in all of this, but banks want to make them the bad guys. How were mom, dad, and the kids supposed to second guess the value a bank put on a property?

    Why would any one?

    So if the consumer gets stuck, the same principle applies. They can rent the place out, or sell. Well, that didn't go well either.

  17. David Losh


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    17   9:13am Sat 1 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    John Bailo says

    mortgage deduction goes to high value property owners in New York City and San Francisco

    Mortgage interest deduction benefits higher property values, and higher incomes.

    There is a slight benefit to the middle class, but I think this is one of those loop holes that can be closed quitey for upper incomes.

  18. Patrick


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    18   10:04am Sat 1 Dec 2012   Share   Quote   Permalink   Like   Dislike   Protected  

    David Losh says

    The foreclosure system isn't working because the price of the mortgage is far in excess of value.

    Yes, that's exactly the problem.

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