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| Mortgage interest rate tax deduction scores political points – but little else | Mortgage interest rate tax deduction scores political points – but little else |
| (30 days later) | |
| Fiction writers often like a principle espoused by the late British author Sir Arthur Quiller-Couch: kill your darlings. It means that when you get to a sentence you really love, almost irrationally, you should remove it. It's only serving your ego, and not your real purpose. | Fiction writers often like a principle espoused by the late British author Sir Arthur Quiller-Couch: kill your darlings. It means that when you get to a sentence you really love, almost irrationally, you should remove it. It's only serving your ego, and not your real purpose. |
| "Kill your darlings" will also be the ruling principle of the fiscal cliff talks over the next 15 days as the president and members of Congress delete tax deductions and government spending. The air in Washington is swept by the heavy sighs of politicians heaving themselves out of their easy chairs to attend meetings and exhibit at least a minimal spirit of cooperation. | "Kill your darlings" will also be the ruling principle of the fiscal cliff talks over the next 15 days as the president and members of Congress delete tax deductions and government spending. The air in Washington is swept by the heavy sighs of politicians heaving themselves out of their easy chairs to attend meetings and exhibit at least a minimal spirit of cooperation. |
| The biggest congressional darling of all is the mortgage interest rate tax deduction, which allows homeowners to deduct the interest rate they pay on their mortgages. Once considered safe, this week the chatter in Washington is that eliminating or reducing the deduction is once again on the negotiating table. | The biggest congressional darling of all is the mortgage interest rate tax deduction, which allows homeowners to deduct the interest rate they pay on their mortgages. Once considered safe, this week the chatter in Washington is that eliminating or reducing the deduction is once again on the negotiating table. |
| The mortgage deduction will cost the government about an estimated $131bn this year, according to many estimates. It allows homeowners to write off the interest on their mortgages. The tax deductions can go up to $1m. | The mortgage deduction will cost the government about an estimated $131bn this year, according to many estimates. It allows homeowners to write off the interest on their mortgages. The tax deductions can go up to $1m. |
| The fact that the mortgage interest rate deduction is being considered as a place to cut the budget is more of a negotiating signal than anything else, according to experts – a sign that politicians are ready to negotiate in earnest. The deduction is so precious to both Democrats and Republicans that offering it to be eliminated is the Washington version of Abraham offering his son Isaac for sacrifice. | The fact that the mortgage interest rate deduction is being considered as a place to cut the budget is more of a negotiating signal than anything else, according to experts – a sign that politicians are ready to negotiate in earnest. The deduction is so precious to both Democrats and Republicans that offering it to be eliminated is the Washington version of Abraham offering his son Isaac for sacrifice. |
| "This is one of the most beloved tax deductions in the country, and has been forever," said Kathy Jones, fixed-income strategist for Charles Schwab. "It's mom, apple pie and my mortgage interest rate deduction." | "This is one of the most beloved tax deductions in the country, and has been forever," said Kathy Jones, fixed-income strategist for Charles Schwab. "It's mom, apple pie and my mortgage interest rate deduction." |
| The mortgage interest deduction has a big psychological effect on homebuyers, making them feel as if the money they're paying will pay off in future tax deductions. Brokers encourage the idea. "[The deduction] is part of a song and dance of real estate agents, when they try to talk you in to a more expensive home," said Guy Cecala, editor of the real estate industry publication Inside Mortgage Finance. "It's a big factor when someone looks at buying a home and mortgage debt, and how much it's going to cost them." | The mortgage interest deduction has a big psychological effect on homebuyers, making them feel as if the money they're paying will pay off in future tax deductions. Brokers encourage the idea. "[The deduction] is part of a song and dance of real estate agents, when they try to talk you in to a more expensive home," said Guy Cecala, editor of the real estate industry publication Inside Mortgage Finance. "It's a big factor when someone looks at buying a home and mortgage debt, and how much it's going to cost them." |
| But many people don't get to take advantage of the actual deduction, which is why it's known as "a rich-person's deduction", Cecala notes. Not only does the interest deduction cover mortgages on primary homes, but also on second homes and even boats, if they're expensive enough. The tax deduction can go up to $1m – which is more than most people's mortgages, let alone their interest payments. | But many people don't get to take advantage of the actual deduction, which is why it's known as "a rich-person's deduction", Cecala notes. Not only does the interest deduction cover mortgages on primary homes, but also on second homes and even boats, if they're expensive enough. The tax deduction can go up to $1m – which is more than most people's mortgages, let alone their interest payments. |
| "It definitely has the trappings of a rich-person's deduction," Cecala said. | "It definitely has the trappings of a rich-person's deduction," Cecala said. |
| "If you look at the numbers, it's a small number of people who get the benefit of it," said Jones. | "If you look at the numbers, it's a small number of people who get the benefit of it," said Jones. |
| Middle class buyers often don't itemize their tax deductions, so even if they think they'll get the interest rate deduction, they never really follow through. Those who make more money – and are savvier about taxes – often have no problem claiming the deduction. | Middle class buyers often don't itemize their tax deductions, so even if they think they'll get the interest rate deduction, they never really follow through. Those who make more money – and are savvier about taxes – often have no problem claiming the deduction. |
| Even so, the deduction is considered to be playing a role in the housing recovery, according to Cecala at Inside Mortgage Finance. | Even so, the deduction is considered to be playing a role in the housing recovery, according to Cecala at Inside Mortgage Finance. |
| He noted that the most active part of the mortgage lending market is jumbo mortgages, or those over $1m in size. The origination of jumbo mortgages will jump to $200bn this year, making 2012 the biggest year since 2007 for big mortgages. (However, it's not as if we're at housing-bubble proportions: the raw numbers in 2006 and 2007 for jumbo mortgage originations were much higher than they are today – $480bn and $340bn, respectively.) | He noted that the most active part of the mortgage lending market is jumbo mortgages, or those over $1m in size. The origination of jumbo mortgages will jump to $200bn this year, making 2012 the biggest year since 2007 for big mortgages. (However, it's not as if we're at housing-bubble proportions: the raw numbers in 2006 and 2007 for jumbo mortgage originations were much higher than they are today – $480bn and $340bn, respectively.) |
| He believes that the ability to deduct the interest has helped the boom in jumbo mortgages this year. "Most of the people who qualify for the current mortgage-underwriting standards are also the people who benefit from the mortgage interest rate deduction." | He believes that the ability to deduct the interest has helped the boom in jumbo mortgages this year. "Most of the people who qualify for the current mortgage-underwriting standards are also the people who benefit from the mortgage interest rate deduction." |
| Another factor: right now, interest rates are so low – as low as around 3% on some mortgages – that the deductions of mortgage interest are not as large as they could be. When interest rates go up again, the deductions will balloon in size once more. | Another factor: right now, interest rates are so low – as low as around 3% on some mortgages – that the deductions of mortgage interest are not as large as they could be. When interest rates go up again, the deductions will balloon in size once more. |
| The deduction is so widely beloved that it's hard for experts to believe it will be eliminated. It could, on the other hand, be curbed. | The deduction is so widely beloved that it's hard for experts to believe it will be eliminated. It could, on the other hand, be curbed. |
| Jones quipped about the old Washington saying: "A billion here, a billion there, and pretty soon you're talking about real money." | Jones quipped about the old Washington saying: "A billion here, a billion there, and pretty soon you're talking about real money." |
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