Mortgage Tax Benefit is Threatened

While an estimated $10 million-plus will be spent to support hundreds of candidates this election year by organizations keyed to housing/finance activities, there’s still a strong chance that the next Congress will further erode the mortgage interest tax deductibility advantage of home ownership.

For decades, most housing professionals regarded the mortgage interest deduction for home ownership as sacrosanct. However, Congress, with Administration backing, last year placed a $1-million cap on the amount of home mortgage interest principal on which interest payments could be deducted. That exception still enabled wealthier homeowners to continue listing up to about $100,000 of mortgage interest as a deductible item on tax returns.

But, as Nestor Weigand Jr., president of the National Assn. of Realtors, pointed out, it was a “precedent-setting step.” Now, he fears, what could be “a giant step next year toward ultimate elimination of the home mortgage interest deduction.”

Weigand noted that Rep. Thomas Downey (D-N.Y.) a member of the House Ways and Means Committee, is getting opinions on limiting total mortgage interest deductions each year to $20,000. And Rep. Sam Gibbons (D-Fla.) is reported to be trying to make the cap even lower.

Weigand insists that any sharply lowered cap on interest deductions would “devastate the market for second homes” and financially squeeze many potential home buyers in areas with high housing costs. However, Washington realtor Joseph C. Murray pointed out that even a $20,000 cap on mortgage interest deduction would not likely affect anyone with a $100,000 mortgage on a primary home and a $75,000 mortgage on a second home--assuming that the interest rate is less than 11%.

Nevertheless, Weigand and others in leadership positions are mounting an effort to convince representatives and senators that a further erosion of mortgage interest deductions would negate home ownership as a national priority.

Already a trade association coalition of realtors, mortgage bankers, home builders, bankers and savings association officials is working through lobbyists and political action committees (fund-raisers and dispensers) to check congressional candidates for their position on further erosion of mortgage interest deductions.

These trade associations have in excess of $10 million to spend this year to help certain candidates--both Democrats and Republicans--whose views are supported. Also, most of the PACs, certainly those of the home builders, will contribute to both the Dukakis and Bush campaigns--just to be sure of always having an ear at the White House.

But there’s still no acknowledgement that PACs’ or lobbyists for housing can literally buy votes. Mark Bolduc, an MBA staffer for PAC activity, said “candidates almost always solicit us (for funds). We don’t buy votes--you can’t--and if you could, it wouldn’t be cost-effective. We buy ears . . . to make certain they will listen to our point of view.”

The efficacy of this approach will be tested next year when Congress, facing a national debt reduction agenda and a need for more taxes, may decide to lessen the mortgage interest deduction for home ownership as it affects homeowners with total first and second home mortgages in excess of $200,000. As of now, there seems to be no threat to the mortgage interest deduction benefits for the average homeowner with an average-priced house.