Bankers’ Hours: Cutting home ownership breaks could free up big money
The first act of the new administration was to cancel the decrease in the FHA mortgage insurance premium, which had been lowered just last month. (This premium is what an FHA borrower pays for the federal government to insure the loan against default.)
This is somewhat surprising, certainly interesting and possibly prophetic.
For years, conservative lawmakers and economists have targeted the massive subsidy that housing enjoys through a plethora of tax breaks, guarantees and incentives.
One of the most iconic of these is the mortgage interest tax deduction. It’s the biggest single deduction for many homeowners, and it’s certainly not matched by anything similar for renters, which critics point out is obviously unfair.
Those who favor it note that it’s a major selling point for home ownership, and it stimulates new home construction, thus providing jobs. Just a bit of tinkering with the deduction could generate a massive amount of money that could be reallocated into whatever programs a given administration wanted to boost.
There are a bunch of other tax breaks, benefits and incentives directed at housing and home ownership. Other examples are the Federal Housing Administration’s mortgage insurance program and Veteran Administration’s Loan Guaranty benefit. These guarantees put Uncle Sam on the hook to make good if a borrower defaults. If too many homeowners don’t pay, the American taxpayer has to pick up the tab. They also enable Americans to become homeowners by providing low or no down-payment mortgage loans.
Which isn’t to say that the Federal Housing Administration and the Veterans Administration Loan Guaranty program for vets haven’t been a resounding success so far. They’ve made the U.S. a nation of homeowners, and, together, have been one of the major factors in creating the world’s strongest economy.
Then there’s the capital gains exclusion up to a certain amount for the appreciated value of your home when you sell it. Another plum for the middle class, but so say many, no others in the U.S. tax base. It doesn’t help the poor, and the rich don’t need it, is the mantra.
Will the new administration go after these subsidies and benefits? Who knows? But it’s telling that its very first act related to a home loan expense that would lower the cost to buy a home. And the whole structure doesn’t have to be pulled down. A tweak here, a limitation there, an elimination somewhere else, and the White House would have enough dough to build two walls, Canadian and Mexican, buy 10 aircraft carriers, lower the corporate tax rate by 15 percent, and, incidentally, get the IRS tab for the new Cabinet down to where it should be for the very wealthy: zero.
If housing is targeted to generate more U.S. Treasury cash, it’s ironic that those who will feel the most pain will be the very voter demographic that voted orange instead of blue in the last election.
Pat Dalrymple is a western Colorado native and has spent almost 50 years in mortgage lending and banking in the Roaring Fork Valley. He’ll be happy to answer your questions or hear your comments. His e-mail is firstname.lastname@example.org.
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