On a snowy Washington morning last December, a group of us from Professional Builder had the privilege of spending a couple of hours with NAHB chief lobbyist Joe Stanton and key members of his staff. The purpose was to conduct an interview, which appeared in PB in February [2]. Our aim was to simply get an update on upcoming issues facing builders. We had no inkling of an emerging (and as of yet, unfinished) compromise between Congress and the Administration that could witness the dismantling of at least two major pillars of our industry – the mortgage-interest deduction and the two government-sponsored housing lenders.
So when Stanton mentioned that both pillars were indeed on the budget bargaining table this Spring, the skeptic in me balked at the notion. How is it politically possible that two such highly valued expediters of the American Dream could be so easily tossed aside? Wouldn’t there be outrage and anger? To me, they come a close third and fourth behind Social Security and Medicare as dangerous ‘third rail’ issues.
Later, at the International Builders Show in Orlando, NAHB CEO Jerry Howard emphasized the point during a committee meeting, noting the speed with which the President and Congress came together to extend Bush-era income tax cuts. To Howard, who is accustomed to reading Washington’s tea leaves, it showed a willingness to make deals on the 2012 budget that lent much more credence to rumors about the mortgage-interest deduction and a phase-out of the GSEs (government sponsored entities), Fannie Mae and Freddie Mac. Then all was confirmed, and the stage for debate set, in February when the White House outlined in a 16-page whitepaper its intention to do just that, dismantle the GSEs.
The implications for our industry are nothing short of transformative. Experts say that if private banking eventually assumes the primary role in backing residential mortgages, it will undoubtedly become more costly to borrow. There will likely be fees for locking in rates. And 30-year mortgages, a staple of the housing industry since 1954, will become available to only those with excellent credit or it may disappear altogether. But the fact of the matter is this. A high percentage of American don’t want the country to be in the business of holding residential loans.
The mortgage-interest deduction logic is also worth “keeping an eye on” says noted Wall Street housing analyst Ivy Zelman, of Zelman and Associates. According to Zelman, far fewer Americans benefit from the MID than one would guess. There are about 110 million occupied households in the U.S., of which 75 million are owner-occupied. About 50 million households have a mortgage but only 39 million households claim a mortgage interest tax deduction, which equates to 35% of households and 27% of tax filers. In short, the MID represents tens of billions in subsidies for slightly more than a quarter of the tax-paying households. In short: it’s do-able with the right political coalition.
Whether you are a builder or a developer, the grimness of this reality could mean a permanently altered market for new homes in the years ahead. Now is a very good time to follow the budget debates in Congress and to let your voice be heard. There are many ways to follow the debates, but I would suggest you stay tuned to HousingZone.com and NAHB.org for the latest news. It is going to be very interesting, to say the least.
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