Debate over Mortgage Interest Deduction, Government Role in Housing

There was sharp disagreement among participants in at leastrnone panel at a forum on the future of housing sponsored by the NationalrnAssociation of Home Builders (NAHB) and produced by CQ Roll Call.  Fellow panelists agreed while that the privaternsector needs to play a greater role in mortgage financing maintaining somernlevel of federal support is essential. </p

PeterrnWallison of the American Enterprise Institute said lowering the conforming loanrnlimits of government sponsored enterprises (GSEs) Fannie Mae and Freddie Macrnover time will allow the private sector to come in and pick up that business.  “If you simply made those changes andrnauthorized the withdrawal of the GSEs, you would find we would gradually movernto a completely private system, which is where I think we should berngoing,” he said.</p

 Michael Calhoun,rnpresident of the Center for Responsible Lending retorted that “Private capitalrnby itself will not secure a safe market and most importantly, private capitalrnduring a down market is least likely to be there.”  Georgetown University Law Professor AdamrnLevitan concurred, saying private money dries up when the going gets tough.<br /<br /Michael Stegman, counselor to the Secretary of the Treasury for Housing FinancernPolicy told the audience "We know how much more serious the [housing andrneconomic] crisis would have been without the FHA stepping up.”</p

Another panel on tax reform drew broad general agreement thatrnthe mortgage interest deduction (MID) plays a key role in shaping housingrndemand, while differing in their evaluation of current policy.  NAHB economist Robert Dietz quoted the TaxrnFoundation that repealing the MID and lowering marginal tax rates would causernthe GDP to decline by $100 billion annually. rnIt would also cause home values to fall. rn<br /<br /Anthony Randazzo, director of economic research at the Reason Foundation, saidrnhe opposes the mortgage interest deduction and believes that tax policy shouldrnnot be set to achieve social purposes.   "Do we want to support middle class or low-income home owners? Then let'srnjust provide an explicit subsidy to people we want to, and then find a middlernground," he said.<br /<br /Dr. John Weicher, a director of the Hudson Institute's Center for Housing andrnFinancial Markets, rejected the idea that the mortgage interest deduction is arntax distortion.  "Keep in mind ifrnyou are a home owner you have an asset and consumption," he said.rn"You are a landlord renting to yourself. It is silly to think of this asrnsimply a consumption when it is the biggest investment that nearly anyone isrngoing to make.”</p

The forum was keynoted by two of the ten co-sponsors signedrnon to S 1217, the Housing Finance Reform and Taxpayer Protection Act of 2013;rnthe Corker-Warner bill.  Co-sponsors JonrnTester (D-MT), Bob Corker (R-TN) were joined by Johnny Isakson (R-GA), a memberrnof the committee studying tax reform </p

Tester said the senators had worked hard to make sure thern30-year, fixed-rate mortgage remains a viable option.  “This is something consumers want andrnexpect. I don’t think we could have a viable 30-year note in a purely privaternmarket.”<br /<br /Corker who, along with Mark Warner (D-VA) filed S 1217, said he thought the 10rnsenators who had weighed in on the bill had made a difference.  "I think we have struck a very goodrnbalance. The 10 percent capital piece is a very, very important element.rnAnother component that was very important was having a federal backstop."  As the process moves forward he expects tornsee improvements to his bill as well as changes to a housing finance proposalrnpending in the House. <br /<br /In terms of tax reform, Sen. Isakson said the Senate Finance Committee isrnprepared to move forward if it gets "the opportunity."   Every provision in the tax code, he said,rnincluding the mortgage interest deduction and Low Income Housing Tax Credit,rnmust be justified in terms of "what they produce for the country. If yourncan't make a case for your tax provision, it should not be in there."<br /<br /"I can make a great case for the preservation of the mortgage interestrndeduction and I can make a phenomenal case for low and moderate income housingrntax credits in terms of the payback to the country, but those arguments have tornbe won and lost when you are truly doing a major reform,” the former realrnestate broker said.  </p

Another speaker at the forum, Eric Belsky, managing directorrnof the Joint Center of Housing Studies at Harvard University said the housingrndownturn had led to a remarkable slowdown in household growth.  “There is not a strong recovery inrnhousehold formations, but we are seeing signs of that happening. People don’trnwant to live with their parents into their 30s; they are doing it out ofrneconomic necessity.”</p

The future of homeownership looks bright, he said.  “Nineteen out of 20 people say they planrnon buying a home somewhere in the future if they are under the age of 45.  You can lock in housing payments with a fixedrnrate mortgage today or look at higher rents in the future. A lot of people willrnlook at that calculation and say ‘I think it is time to buy a home.'”

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