The tax deduction for mortgage interest payments, long cherished by consumers and the housing industry alike, is in danger of being trimmed.
In a few weeks the president's bipartisan commission will release its recommendations for solving the nation's staggering debt load. According to the Urban Institute, the mortgage interest deduction costs the Treasury Department $130 billion a year in tax receipts — money that, if collected, would shrink federal deficits by a similar amount.
Industry lobbyists and executives have been hearing increasing talk over the past several weeks that at the very least the commission will recommend trimming the cap on mortgage interest deductions to loan amounts of $750,000 or less. (Interestingly, the $750,000 figure is almost equal to the Fannie Mae and Freddie Mac loan caps.)
Currently the mortgage interest deduction has a ceiling of $1 million of mortgage debt, which means that if housing-related lobbyists persuade the panel members to stop at $750,000 it won't result in much revenue flowing back into government coffers. And there's a fear that some panel members might try to eliminate the deduction. After all, politically speaking, it is much easier to remove an existing deduction than to raise taxes.
Some in the industry believe $750,000 is something they can live with. But the National Association of Realtors (whose members' business relies on mortgage liquidity) isn't taking any chances.
The trade group is already mobilizing with a national ad campaign with the tag line "Homeownership Matters — to people, to communities, to America."
Roy DeLoach, a former lobbyist for the Realtors who is about to step down from the National Association of Mortgage Brokers but remain as an outside lobbyist, said "this is a big deal to them." But he also understands, he said, that everyone in government "is looking for some way to increase revenue."
Joe Ventrone, a lobbyist for the Realtor group, said he could not comment on the mortgage interest deduction and what the commission might do. But he passed on a copy of the trade group's marketing flier that says, "Studies show that homeownership has a significant impact on net worth, educational achievement, civic participation, health and overall quality of life."
A lobbyist who works for the mortgage insurance industry seemed confident that Realtors, the National Association of Home Builders and Mortgage Bankers Association would find a way to "squash this thing, kill it in the crib." But this lobbyist, requesting anonymity, said: "If you're going to make a significant down payment on reducing the deficit, this is one way to go. The bottom line is that you have to increase revenue."
For now, the mortgage and housing industries don't know where the commission will land. But in preparing their defenses, they plan to pull out this argument: killing the mortgage interest deduction would in turn kill the nascent housing recovery.
