Tuesday, November 27, 2012

The Mortgage Deduction Comes Under Attack Again

Every few years, the idea of eliminating the mortgage deduction rears its ugly head again.  Although I understand and can even accept some of the arguments for getting rid of it, this isn't the time, nor do I trust Congress to enact something that, in the end, makes sense.  Look at all the parts of the Dodd-Frank Act that were bolted on, and how they have changed an entire mortgage industry, and not for the better.

The mortgage deduction is simple, understood by almost everyone, and factored into many people's homebuying decisions.  They calculated the affordability of their current homes based on what they would pay for housing after tax, and they counted on being able to do that for the life of their loan.  Changing the rules now risks starting a whole new cycle of mortgage defaults, foreclosures, debt modifications, and housing declines.

We all know that the strength and health of the housing industry is crucial to a lasting economic recovery.  We've been waiting for it to improve, and it has lagged badly over the past couple of years.  Many homeowners still haven't gotten to where they are "in the black" on their homes--in fact, New Haven county, which is one of the worst places in the state and in the country, still has 26% of homes that are "under water", meaning that they are worth less than the debt on them.  Why would we fool around with making that number worse, when we are just emerging from five years of price declines and depressed sales?  I don't get it.

It is certainly possible to come up with many reasons for making changes in the tax code, and we can all list things that we don't think are fair that still exist in its voluminous pages.  However, we all also know that housing is a bedrock of our fragile economy, and that, as many politicians have said over the years, "you don't change horses in midstream".  Let's leave well enough alone, at least until people can actually pay their mortgages and/or sell their homes.