MBA: Mortgage interest deduction changes will spur “negative impact” on local housing markets

Here's the good and the bad for the mortgage industry

As the future of tax reform remains a hot-button issue, the Mortgage Bankers Association continues to stress the importance of the mortgage interest tax deduction to Congress.

The trade group, which represents the real estate finance industry, sent a letter to Kevin Brady, R-Texas, chairman of the House Committee on Ways and Means, and Richard Neal, D-Mass., ranking member of the House Committee on Ways and Means, in order to share the industry’s perspective on the most recently released text of H.R. 1, The Tax Cuts and Jobs Act.

The bill cuts the mortgage interest deduction in half. Its previous limit was $1 million.

From the bill:

The aggregate amount of indebtedness taken into account under subparagraph (A) for any period shall not exceed $500,000 (half of such amount in the case of a married individual filing a separate return).

The cut was enough to raise concerns at the MBA on how it would impact housing markets and the overall economy.

“The introduction of this bill is an important milestone along that road,” the letter stated. “However, we do have strong concerns about how certain provisions of the bill will impact housing and real estate markets around the country.”

The letter then highlighted the future of the MID.

“Although H.R. 1 would provide both owners and renters with more take home pay by lowering overall tax rates and nearly doubling the standard deduction, we believe the cumulative impact of the changes to the MID and property tax deductibility would erode homeownership incentives for too many Americans,” it stated.

And as a result, the MBA said that the following three things would negatively impact homeowners and prospective buyers in individual housing markets around the country.

  1. The proposed $500,000 cap on post-November 2, 2017 acquisition indebtedness for MID.
  2. The elimination of deductibility of interest on home equity loans.
  3. The limitations on the deductibility of state and local taxes ($10,000 cap on property taxes).

The MBA, however, did include in the letter what they view as a better provision for the housing market.  

“We believe Congress should take this historic opportunity to think creatively about new homeownership incentives targeted more efficiently to low- to moderate- income borrowers – such as the proposed 12% homeownership tax credit based on qualified mortgage interest plus property tax,” the letter stated.

The MBA doesn’t dislike everything in the tax proposal and highlighted a few areas it supported. For example, MBA is pleased that the bill preserves business interest deductibility for real estate as well as Section 1031 like-kind exchanges for real property.

As Congress continues to reach a consensus on tax reform, the letter concluded, “We stand ready to work with you to ensure that Americans, whether they own or rent, continue to have access to affordable and sustainable housing.”

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