The Tax Change That Threatens Homeownership
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The Fiscal Times
May 2, 2012

D.J. Snapp, a realtor from south Florida, leans forward and stares at the camera, looking like a guy who’s fed up. He’s trying to fire up other agents for a first-ever event next month—a demonstration of realtors in Washington, D.C. “For this first time in history,” he says in the video on the National Association of Realtors’ (NAR) website, “homeownership is under attack in this country.”
 
The NAR is expecting 10,000 to attend the “Rally to Protect the American Dream” on May 17. With the numbers of home owners dropping precipitously, realtors are organizing against federal policy moves that they say would cut the number of owners even further—moves like doing away with the mortgage interest deduction, ending federal backing for mortgage purchasers Fannie Mae and Freddie Mac, and toughening mortgage loan requirements.  Loose mortgage loan requirements—occasionally with no down payment required—are cited as one key driver of the housing bubble. 

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If the president and Congress try for a tax-reform deal after the November election, the mortgage interest deduction is a likely target, according to Marc Goldwein of the nonpartisan Committee for a Responsible Federal Budget. The Obama administration’s 2013 budget already proposes limiting the deduction for those earning more than $250,000. And two weeks ago, reporters overheard Mitt Romney tell a group of fundraisers that he would likely end the mortgage deduction for second homes owned by high-income earners. (The campaign has since backed away from those remarks.)

Congress also could take up the idea, favored especially by congressional Republicans, to do away with federal support for Fannie Mae and Freddie Mac or dismantle those systems altogether. “I think after the election, there’s no question we’re going to see wholesale tax changes that could be quite substantial, and [reform of Fannie Mae and Freddie Mac] will definitely be on the table,” housing economist Kenneth Rosen told reporters on a March 28 call.

Realtors also say a provision of the 2010 Dodd-Frank financial reform law could lower the number of homebuyers who qualify for loans. Under the act, the Federal Reserve and six regulatory agencies must come up with new criteria to guarantee borrowers can pay back their mortgage. The first item proposed is to require that buyers make a 20-percent down payment to qualify for a loan. Snapp, who is also an NAR vice president, says many otherwise solid buyers can’t accumulate those large down payments and so won’t qualify for mortgages. A study from the Center for Responsible Lending at the University of North Carolina estimates that requiring 20 percent down would eliminate 60 percent of buyers.

The homeownership rate dropped by 1.1 percent between 2000 and 2010, the largest 10-year fall since 1930 to 1940, according to the Census Bureau, and fell to a 15-year low in the first quarter of 2012. Attitudes toward homeownership also have changed: The number of those who consider a home a safe investment fell from 83 percent in 2003 to 66 percent in 2011, according to a survey by Fannie Mae and two other organizations. In another poll last April, commissioned by real estate data firms RealtyTrac and Trulia, 40 percent of renters questioned said they plan never to buy a home.

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Realtors in two states are trying to protect the mortgage deduction for all buyers. In February, Maryland realtors demonstrated at the statehouse to protest Democratic Governor Martin O’Malley’s plan to trim the state’s mortgage break for upper-income homeowners. In Kansas, the state realtors association has slammed Republican Governor Sam Brownback’s tax overhaul plan, which would end the state’s mortgage interest deduction.

Snapp says the NAR rally is meant to send similar messages. “We can’t go there,” he says of changes to the federal mortgage deduction. “If you start taxing people’s mortgage interest, then all of a sudden maybe they can’t qualify for a loan because they have less cash available to make the mortgage payment.”

STEVE YODER writes about business, real estate and other domestic policy issues. His work has appeared in print and online at Salon, The American Prospect, Men's Health, The Crime Report, and elsewhere.