Is It Time to Revisit This Deduction?

The Mortgage Bankers Association changes course on its support of the mortgage interest deduction.

By Steve Murray, publisher

According to a recent interview, President and CEO David Stevens of the Mortgage Bankers Association said that the organization is “not religiously wed” to the mortgage interest deduction, so long as any change comes as part of a comprehensive tax reform proposal rather than a one-off change to the tax code.

“If the entire tax code were to be looked at through a formal process and it was thorough, and the mortgage interest deduction then became part of that dialogue, we certainly would support that,” Stevens said in a television interview.

Nearly 33.6 million taxpayers deducted $72.4 billion in mortgage interest from their 2014 taxes, and that figure could rise to as much as $96.4 billion by 2019, according to estimates by the Congressional Joint Committee on Taxation. That makes it one of the largest tax breaks taken by individuals.

Middle-class homebuyers benefit the most from the deduction. About 43 percent of taxpayers who took the deduction had adjusted gross incomes between $100,000 to $200,000, according to the committee’s estimates, while another 40 percent of taxpayers who took the deduction made less than $100,000.

Stevens’ statements are a departure from the MBA’s previous opposition to any attempt to eliminate or even reduce the deduction. The group opposed a November 2010 proposal on scaling back the deduction, citing the fragile state of the housing market. The group called the deduction “one of the pillars of our national housing policy, and limiting its use will have negative repercussions for consumers and home values up and down the housing chain.”

At the start of 2013, the deduction survived contentious negotiations on a deficit reduction bill. But it has remained a target for those looking to increase revenue for the government.

So why the change in course?

“Entry-level homebuyers typically don’t deduct, don’t itemize, and wealthy borrowers won’t really care,” Stevens said, adding later, “You can’t say, ‘touch everybody else’s pocketbooks, but not mine.’ So I think it needs to be part of the discussion.”

“I do think that everybody needs to recognize that the American that benefits from the mortgage interest deduction is a middle-class homebuyer and not on either end,” Stevens said. “So ultimately, that impact needs to be understood so we can understand what that’s going to mean to household demand and affordability. As long as that’s considered in the overall dialogue, we’re eager to participate.”

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