As of January 1, 2012, a new law has eliminated the ability of large numbers of home buyers and owners to write off their mortgage insurance premiums (MIPs). Alongside the loss of the tax deduction, Congress now requires new fees on all conventional Federal Housing Administration (FHA) loans. Together, these regulations will lead to an increase in the cost of homeownership for buyers by the end of this year.
Millions of existing owners and new homebuyers will be affected by the elimination of the MIP deduction. The law will affect all newly originated mortgages with less than a 20% downpayment and may also apply to all low downpayment-mortgages made after 2007. [For information on personal savings and the 20% downpayment solution, see November 2011 first tuesday article, The 20% solution: personal savings rates and homeownership.]
Enacted in 2006, the MIP deduction allowed borrowers using private or federal insurance to write off their premiums. In most cases, borrowers saved significantly from their post-tax deductions, depending on marginal federal tax brackets (with higher income households saving more). Thus, the termination of mortgage insurance deductibility concerns middle-income and first-time buyers in terms of price consideration.
This elimination of the ability to write off premiums is not the only change in law to affect borrowers’ housing costs. Beginning in April, Fannie Mae and Freddie Mac will charge a surtax on guarantee fees charged to private lenders, which could add an eighth of a percentage point to rates, significantly increasing costs paid by the borrower over the life of the loan. FHA loans will raise annual premiums for new borrowers by one-tenth of a point annually.
first tuesday take: Embrace this change. Government sanctioned tax policies to supplement homeownership have artificially increased home prices as a tool to keep the economy going. The American Dream, built on expectations of homeownership, has suffered as a result.
While the virtue of owning a home has become deeply embedded in the American psyche, our present model of homeownership is riddled with detrimental policies that serve only to increase debt for homeowners and, as we have seen again recently, increase their risk of losing their homes.
The homeownership driven economy of the past 30 years was created through government tax incentives, supporting loopholes to purportedly implement the nation’s housing policy rather than personal savings for that home purchase and a sustainable economic vision for those inclined to own. [For more information on government tax deductions in relation to homeownership, see the June 2011 first tuesday article, Subsidizing the American Dream.]
Rather than benefitting American homeowners, tax subsidies always both profit the rich and support loss-operating businesses – builders, mortgage banks and the Wall Street bond market. Worse, they are bad for the economy, to say nothing about the inevitable violence these juiced up conditions bring to the real estate market.
As housing subsidies have been determined to have no effect upon the level of homeownership nationwide, the loss of tax deductions will not reduce the number of homeowners. Instead, this change will ultimately benefit homebuyers because the government will then have an opportunity to create a stronger plan for economic recovery rather than simply dropping interest rates and granting subsidies for homebuyers so construction jobs and lending activity take off again.
The removal of the MIP deduction is a first step toward the repeal of mortgage interest tax deduction subsidy, which has long been advocated by first tuesday. Such a repeal will have little impact on sales prices. The low- and mid-tier homebuyers and owners receive no value from these subsidies. Subsidies serve primarily to drive up the price of homes (evidenced most recently by the cycle in 2009-2010) and mortgages, both of which form the pass through of the subsidy to the rich.
It is the rich that scream about losing the subsidies (builders, lenders, provides of closing services and high-tier homeowners).
Better yet, without subsidies, prices will more likely remain at their fundamental equilibrium rather than be driven by conditions outside the basic need for a home. A change in the collective attitude regarding mortgage debt is needed, with the MIP deduction being a step in the right direction. [For more information on mean pricing and the historical pricing equilibrium, see October 2011 first tuesday article, The equilibrium trendline: The mean-price anchor.]
Re: “Federal tax deduction for mortgage insurance premium expires” from L.A. Times
They just keep chipping away at private industry. The sooner fannie gov and freddie gov fade away the better.Some day we will get back to brass tacks. No one screamed louder than me when 0 down for nothing in Bushs summer 04 appeared. All the real estate smarties were on their way to quitting their jobs to be RE investors.Pilgrams aint so proud now! Now this administration has doubled down to keep those tax revenues up for the government workers. The old and young (Obamas biggest supporters) will pay through devaluation. Best of luck! Fools….
First Tuesday should confine itself to education, rather than attempt to indoctrinate us with liberal concepts with extremely questionable conclusions (agreed, as another said). Students also need to see the R.E. Practice manual, which is chok-ful of similar commentary. As for the mortgage interest deduction, this can be discussed objectively, but consider the fact that it has been a great incentive for citizens to invest in AMERICA. Instead, educators like “First Tuesday obviously decided to make this a class warfare issue, which I find totally abhorrent” (DITTO!).
The inability to deduct the mortgage insurance premium from taxable income is really not that big a deal in my opinion. It has only been around for a short period of time. The mortgage interest deduction, on the other hand, has been a staple in the home ownership scheme for a long time. The loss of tax revenue to the government has been offset by the taxes paid by those in the home building industry, lender and closing services companies, not to mention the increased sales taxes, collected locally in the home improvement retail sales that traditionally follow a home purchase.
Imagine, if the typical homeowner could not write off the mortgage interest on his/her Schedule A then only the investor would be able to benefit from the deduction as a “business expense” on the Schedule E. I wonder who might be supporting this idea?
I LOVE THIS COUNTRY AND ITS DECENT HARD WORKING AMERICANS AND MY MILITARY WHO GIVE THEIR LIVES FOR US. UNFORTUNATELY I FEEL WE ARE GOING DOWN AND CATCHING SPEED OUR DEBT HAS DOUBLED IN 3 YEARS NOW OUR PRESIDENT WILL GIVE HIS FRENDS ALL THE ASSETS OF FANNIE MAE AND FREDDIE MAC WHILE WE INHERIT THE LOSES, I’M SICK OF THIS LOOTING AND RAPPING.
l agree with you totally run for president.
First Tuesday should confine itself to education, rather than an attempt at indoctrination of liberal concepts with extremely questionable conclusions. The mortgage interest deduction, etc., can be discussed objectively. Rather, First Tuesday obviously decided to make this a class warfare issue, which I find totally abhorrent.
I can’t wait until only the rich own the houses and the poor are our tenants. We will be able to stick it to them at our will. Without all the subsidies a decline in home building will create a shortage which (if you took econ 1) will create higher prices. Citrus Heights in California had a buyer from Asia purchase a large subdivision that went broke. He finished the subdivision rented them all out and after a few years he decided to sell all of the units at once. Guess what, there weren’t enough QUALITY housing to accomadatete the new infulx of movers. The local gov stepped in and did everything they could to stop him form his legal rights because these TENANTS had to suffer some inconvience. Why did I just go there; because I can’t wait to see what the government has to do next to protect these new renters from these wealthy pigs that invest their hard earned money in an investment so they can achieve the American dream..
It’s sort of amusing that most folks think we need to do something about the current economic situation. However, almost none of them are willing to consider something that might touch themselves financially…
And then we have all of the usual Obama haters. Do they really believe that a republican would have done any better?
Poor Mary – she wrote an article that the above commenters would agree with but First Tuesday buts in with “first tuesday take: Embrace this change…” and lathers liberalism all over her correct criticism of the latest Fed Foolishness. Hey guys, I totally agree with your comments but they should be directed at First Tuesday, not Mary. Please reread her article ignoring FT’s expletives-deleted. (What is it with FT lately? Their articles are getting increasingly Doonesberryish. Seems they have forgotten who their audience is.)
Rejoice now this is election year all is great, wait wait wait for the next 5, 10 15 years, we all will cry because our country is being looted of freedom, assets. dignity. we are becoming a third world country.
This is the second time this ill conceived commie tripe has appeared (that I know of) in Prav Tuesda.
One question, only one for the brilliant author; if tax subsidies/breaks/incentives don’t work, then let’s first unburden the poor of theirs. You should win a lot of hearts and minds then!
we need that morgage tax write off, thats about $3000 return on the morgage. If you lose that, you might as well rent.
To state the morgate interest deduction has little impact on low to mid tier home owners is astonishinng. And then you follow it up with the removal of the interest deduction will have no impact on sales price. My God, you are hilarious. Have you ever cracked the binder on an economics book? If you are representing first tuesday, as the article indicates, I fear I must remove myself from your scrolls. Anyone with such brilliant reasoning skills and high brow insights may find it easy to prey on such a simple minded individual like myself.
First you state
To state the morgate interest deduction has little impact on low to mid tier home owners is astonishinng. And then you follow it up with the removal of the interest deduction will have no impact on sales price. My God, you are hilarious. Have you ever cracked the binder on an economics book? If you are representing first tuesday, as the article indicates, I fear I must remove myself from your scrolls. Anyone with such brilliant reasoning skills and high brow insights may find it easy to prey on such a simple minded individual like myself.
The article’s writer states “As housing subsidies have been determined to have no effect upon the level of homeownership nationwide…”. Really? And the purpose of allowing the mortgage interest deduction was what?
Simple math doesn’t support your article. Housing is basically paid for with disposable income. What is the current debt/income ratio for an FHA loan? I bought in ’10 and it was 48%
Ok, well without tax breaks my total income tax “from all grubby government entities” is 28% as is most in this company. At 100 grand that leaves 72 grand disposable and with no debt 3120 a month at the 48% rule. Even at the current interest rate that wouldn’t get a shack in the bad area of town. Prices would have to drop another 30%. When that happens the state and local coffers would dry up from the sudden drop in property taxes.
I agree with the principle of the thought, in so much as none of these tax breaks should have ever existed. but to trash them now would be economic suicide.
What a stupid idea! Of course not being able to write of mortgage interest from your taxes will have a detrimental effect of those considering buying property. If things were bad enough with the real estate market now this policy surely will make things worse. It will sadly also effect those considering home remodels and the tradesman who could be working on these homes. It’s bad enough the value of most homes has dropped considerably but now there seems to be no benefit to ownership with this policy. Great for the market; NOT!
Our Nation is in trouble. Nothing is off the chopping block. This is not that big a deal.
When Gov. wants to back out people scream. But when Gov. steps in people scream.
This will not destroy home ownership or affect an individuals consideration to purchase a homes.
Investors may scream—but it’s and investment…. And yes I am an investor.
A fair view of existing homeowners needs said here.
Whenever advocating changes to existing rules and regulations, those who relied upon the existing rules at the time they acted, need protected or grandfathered and specifically excluded from any new policies.
Specifically if an existing homeowner relied upon the mortgage interest deduction when purchasing their home as an integral part of their overall loan repayment plans, to then rip that deduction out from under them now would be patently unfair and worse. Yes, times change, and rules change, and anyone now entering the market should be prepared for new regulations. But in our rush to fix things, let’s not neglect and punish those, including retirees, who have faithfully met their obligations, continue to struggle through this economy, with proposing another huge hit on their finances.
Not all existing homeowners are fat cats living on easy street.
Wake-up, First Tuesday theorists.
Whomever wrote this article is completely clueless and obviously backs the support of the current government admistration which is by far the worst in generations. The writer of this article (along with the current government admistration) contiues to try and make things a class warfare issue. I am extremely disturbed that First Tuesday would allow this article to be published and will never get my support and business again, and I will be sure to pass on this to the many peers I have in the industry who know doubt share my same views. Dispicable article!
I feel as being ruled by a gang that you have given all your valuables and they still stab you to death, no monies are enough for this administration. HOPE HELLO|||||| CHANGE ABSOLUTELY ONE THAT MAKES ME CRINGE OF FEAR AND DESPAIR.