Mortgage Interest Deduction Softens Blow as "Tax Day" Approaches

WASHINGTON, April 11 - With the April 17 tax-filing deadline right around the corner, the most important tax deduction for tens of millions of middle-class families could be on the chopping block as early as next year's tax season if some policymakers get their way.

"The mortgage interest deduction has been in existence since the inception of the federal tax code nearly 100 years ago and is a cornerstone of U.S. tax and housing policy," said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla.

"With many local housing markets across the nation just now showing signs of a long-awaited spring thaw following the worst downturn in decades, protecting the mortgage interest deduction and promoting tax policies that will keep homeownership affordable is very important to create jobs and keep the economy moving forward," he added.

The deduction is broadly used across income groups and geographic areas. Data from the Joint Committee on Taxation indicate that more than 33 million families benefitted from the deduction in 2010 and that these households saved a collective $83 billion on their tax bills.

Though the mortgage interest deduction is the primary reason that taxpayers become itemizers, critics have unfairly attacked it as a tax loophole (despite the fact that more than 33 million households claim it) and a subsidy to the rich.

Here are the facts. The mortgage interest deduction primarily helps middle class home owners and is consistent with the principles of a progressive income tax. Two-thirds of the benefits flow to working class American households who earn less than $200,000 annually and nearly all those who own a home of their own will claim the deduction at some point during their tenure as home owners.

NAHB research has shown that as a share of household income, the deduction is most important for younger home buyers, who typically have less equity, tighter household budgets and are paying mostly deductible interest and relatively little principal.

"The American people understand that curtailing or getting rid of the deduction to help lower the federal debt would result in a big tax hike on millions of middle-class home owners and that prospective buyers who are counting on its benefits to lower their monthly mortgage payments would remain on the sidelines," said Rutenberg.

The collateral damage to the economy would be even more devastating, resulting in lower home values, which would leave more home owners underwater, trigger more foreclosures and prolong the housing slump for years to come.

Changing the rules now would not only take money out of the pockets of those home buyers who rightfully counted on the deduction being there when they needed it, but also penalize millions of baby boomers nearing retirement and seniors who own their homes outright.

Those looking to use the proceeds from their home to move into a retirement community, help defray health care costs or to fund other long-term obligations may find that declining home values will shrink their retirement nest egg and force them to keep working and stay put because they can't afford or are unable to sell their current home.

Yet, there are critics who still suggest that the mortgage interest deduction should be weakened or even abolished in order to raise tax revenues for the federal government, a minority view that flies in the face of public opinion.

A New York Times/CBS News poll conducted last summer reveals that nine out of 10 Americans oppose eliminating the mortgage interest deduction and a nationwide survey of likely voters commissioned by NAHB earlier this year shows that 73 percent oppose abolishing the deduction.

Further, the NAHB poll found that three out of four voters believe it is appropriate and reasonable for the federal government to provide tax incentives to promote homeownership and 68 percent would be less likely to vote for a congressional candidate who proposed to eliminate the deduction, a sentiment that cut across party lines.

"Raising taxes on the nation's home owners is clearly not the right answer to resolve our nation's fiscal woes," said Rutenberg. "Such an ill-advised action would devalue housing, lead to massive job losses and derail the fledgling economic recovery."

Congress must act to reinstate the higher conforming loan limits that expired on Sept. 30

To help mend the struggling housing market, provide affordable mortgages for creditworthy home buyers and stabilize home values, which are all critical to creating jobs and helping the sputtering economy, .

The Senate has already approved a plan to reinstate and extend the higher loan limits for an additional two years. In light of the continuing weakness in the overall housing market, it is incumbent upon the House  to follow suit to ensure that millions of homes will still be eligible for Fannie Mae, Freddie Mac and FHA funding.

Last month, the national ceiling for mortgages securitized by Fannie Mae and Freddie Mac or insured by the FHA dropped from $729,750 to $625,500 and the formula for establishing area loan limits became more restrictive, producing decreases in more than 650 counties in 42 states in addition to those bound by the national ceiling.

This ripple effect means that millions of homes nationwide, including a substantial number in our local community, are now ineligible for Fannie Mae, Freddie Mac and FHA funding. In order to obtain a home loan, buyers will be subject to higher mortgages interest rates, fees and downpayments and more stringent credit standards.

Restoring the higher loan limits will provide home owners and home buyers with safe and affordable financing while providing a much-needed boost to housing markets all around the country.

If the House fails to act, the results could prove catastrophic for our local and national economy. The current drop in mortgage loan limits will reduce housing demand and place downward pressure on home prices in our local market and other areas across the nation. In turn, this will trigger more foreclosures, impede job creation and cause the fragile economy to backslide into recession.

The stakes could not be higher. At a time when stabilizing home values is vital to bolster household wealth, spur job growth and get the flagging economy moving forward, the House must act responsibly and reinstate the higher loan limits.

IMPROVING MARKETS INDEX EXPANDS TO 30 METROS IN NOVEMBER

WASHINGTON, Nov. 7 - The number of improving housing markets continued to expand for a third consecutive month in November, rising from 23 to 30 on the latest National Association of Home Builders/First American Improving Markets Index (IMI), released today. The list dropped two metros and added nine new ones - Cheyenne, Wyo.; Corpus Christi, Tex.; Davenport, Iowa.; Fort Collins, Colo.; Hinesville, Ga.; Lima, Ohio; Monroe, La.; Tyler, Tex.; and Williamsport, Pa.

The index identifies metropolitan areas that have shown improvement for at least six months in housing permits, employment and housing prices. The following metros were listed in November:

Alexandria, LA

Amarillo, TX

Anchorage, AK

Bismarck, ND

Casper, WY

Cheyenne, WY

Corpus Christi, TX

Davenport, IA

Fairbanks, AK

Fayetteville, NC

Fort Collins, CO

Hinesville, GA

Houma, LA

Jonesboro, AR

Kankakee, IL

Lima, OH

McAllen, TX

Midland, TX

Monroe, LA

New Orleans, LA

Odessa, TX

Pine Bluff, AR

Pittsburgh, PA

Sherman, TX

Sumter, SC

Tyler, TX

Waco, TX

Waterloo, IA

Williamsport, PA

Winston-Salem, NC

"Texas continues to dominate the list of improving housing markets in November, increasing its net number of entries to eight and continuing a trend in which energy-producing metros seem to be doing better than the average," said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev. "Meanwhile, the geographic diversity of metros also continued to expand this month, with the states of Colorado, Georgia and Ohio all represented for the first time. This is further evidence that all housing markets are uniquely dependent upon local conditions, and some are leading the way toward an eventual, broader recovery."

"The November IMI remains heavily weighted by smaller cities, with Pittsburgh and New Orleans as the only major metros represented," said NAHB Chief Economist David Crowe. "This is indicative of the tough conditions that continue to prevail across much of the country, particularly in larger markets that have been hit hardest by job losses and foreclosures during the recession and that will take more time to heal. However, momentum is building in pockets of the country where energy and agriculture are the dominant industries and where consistent, measurable improvements in economic conditions are now becoming apparent."

The two metros that dropped off of the improving markets list in November were Iowa City and Wichita Falls. These metros experienced declines in their employment and permit data, respectively.

The IMI is designed to track housing markets throughout the country that are showing signs of improving economic health. The index measures three sets of independent monthly data to get a mark on the top improving Metropolitan Statistical Areas. The three indicators that are analyzed are employment growth from the Bureau of Labor Statistics, house price appreciation from Freddie Mac, and single-family housing permit growth from the U.S. Census Bureau. NAHB uses the latest available data from these sources to generate a list of improving markets. A metro area must see improvement in all three areas for at least six months following their respective troughs before being included on the improving markets list.

Please visit www.nahb.org/imi for additional data, tables and a list of 2011 future economic release dates.

Editor's Note: The NAHB/First American Improving Markets Index (IMI) is released on the fourth business day of each month at 10:00 a.m. ET, unless that day falls on a Friday - in which case, the index will be released the following Monday. A full calendar of 2011 release dates can be found at www.nahb.org/imi.