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Opinion, commentary, and analysis on everything that makes the U.S. housing economy tick -- not to mention the ghosts in the machine, too. Written by HW's team of editors and reporters each business day.
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Monday Morning Cup of Coffee: Will Trump ax mortgage interest tax deduction?

Doing so would be political suicide, right?

December 5, 2016

Monday Morning Cup of Coffee takes a look at news coming across HousingWire’s weekend desk, with more coverage to come on larger issues.

The Urban Land Institute reports its Emerging Trends for 2017 right here.

You all know how it goes: we run into December and here come next year’s outlook reports.

Well, we at HousingWire will review each and every report we can get our hands on and share pertinent info with you as necessary. So check back daily for your economic report updates.

In the meantime, the ULI report is fairly steady-as-she-goes: “Little in the U.S. macroeconomic data suggests overheating, the primary symptom of trouble ahead for the cycle,” the report states.

But remember, the word to emphasize in all of that is “steady,” as the ULI report expresses some trepidations among investors.

The volume of available capital that is seeking “core properties” has pushed pricing past prior peaks in many markets, making some moves on the chessboard costly. Reduced leverage ratios have shifted more risk toward the equity investor. As one longtime observer of institutional investors put it, “We are in the ‘white knuckle’ phase of the cycle. Champagne is not flowing at closings.”

There is plenty more to digest in this report, everyone, so we’re going to need some more time to flip through it. Be sure to check back later!

So you think you are having a tough time getting approval for a loan? Credit score not good enough? Whoa, we’ve all been there, but the latest chatter is China going all Big Brother on credit scoring; so you can thank your lucky FICO you live in ‘Merica.

[Check out this Google search.]

China is exploring the possibility of tracking citizens' “social score,” that is, whether they pay traffic fines and generally behave themselves when on social media.

The Consumerist puts it this way: “Sure, the Party keeps files on every citizen, but the score is a way to make antisocial behavior affect them instantly and in more areas of their lives.”

Dear China, let the record show most of my electronics were made by your people, and I’ve not a single complaint. I was always nice to you, China.

Most of the mortgage market news remains fixated on President-elect Donald Trump and the impact his election signals for interest rates in particular.

It’s no wonder when Trump’s main man for Treasury, Steven Mnuchin, wants to 86 Dodd-Frank.

And so... cue proponents of international capital standards under global rules set forth by the Basel Committee. Should we let Eurobankers tell us how to regulate our markets? I used to be a believer until I tired of repeated arguments such as this:

At a U.S. bank, $100,000 of average mortgage debt requires $7,040 of bank equity to guard against losses assuming a common equity capital ratio of 11%. Using the same ratio in Sweden, the equity required is just $770.

That huge difference has many explanations—and these two markets are extremes. But it highlights why mortgages are such a big part of the battle to finalize global capital rules in the Basel Committee, the global conclave of regulators.

By the author’s admission, both markets are extremely different. Yet, let’s go ahead and compare them anyway. Well, if I’ve learned anything from recent times, it is to expect the unexpected and not to compare past experiences to future expectations.

Point is, if we’re going to dismantle Dodd-Frank, can we really be expected to keep implementing Basel? Perhaps so, if Mr. Trump wishes to “Make America Great Again [Just Like Sweden].”

Mnuchin’s chatter also spurred another line of thought around Trump’s potential changes to the tax code.

Indeed, this article in Business Insider posited that the new code may compromise the claiming of the ever-popular mortgage-interest tax deduction.

Let's say a single filer pays about $10,000 in mortgage interest in the first year she owns a home. That far exceeds the current $6,300 standard deduction, so she itemizes her deduction to claim a greater tax break. It's one reason she decided to buy rather than rent. 

But under Trump's plan she's better off taking the standard deduction. Her taxes are simpler, but they're no longer significantly different than if she had rented. That's why industry groups are watching closely. 

Of course, doing away with the mortgage interest deduction is tantamount to political suicide (my, we love it so!) so no politician in his/her right mind would ever consider getting rid of that, right?

For those uncertain of the answer to that question, please see my aforementioned lessons learned.

And see you all out there on the mortgage battlefield this week!

 

 

 

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