What he said next was artfully ambiguous, and
has been interpreted in starkly different ways: "One of the
interesting debates will be, of course, in the course of simplification,
will there be incentives in the code: charitable giving, of
course, and mortgage deductions are very important. As governor
of Texas, when I -- some time I think I was asked about simplification,
I always noted how important it was for certain incentives to
be built into the tax code, and that will be an interesting
part of the debate."
Is mortgage interest deduction
in play?
Jerry Howard, chief executive of the National Association
of Home Builders, believes that Bush has signaled continued
support for the deductions for mortgage interest and charitable
giving. "Obviously, we have to be very, very vigilant as that
debate begins," he says.
That word -- debate -- is precisely what got the attention of
Howard Glaser, a consultant to the mortgage and real estate
industries and a former official with the Department of Housing
and Urban Development. If the mortgage interest deduction is
untouchable, Glaser asks, why would Bush call it "an interesting
part of the debate"?
If there are any attacks on the home mortgage
interest deduction, they will come from at least two fronts.
First, proponents of a flat tax will argue that homeowners
will break even by paying lower rates, but with deductions
removed. A flat tax wouldn't necessarily be an income tax;
it might be a levy on consumption, akin to a national sales
tax.
A more subtle argument, advanced by Cosgrove,
goes like this: If the mortgage interest deduction stays in
the tax code, but tax rates are cut, the deduction saves less
money. It's less valuable.
On the other hand, Ken Wade, chief executive
of Neighborhood Reinvestment Corp., says too many low-income
families don't take advantage of the home interest deduction.
It's one of many blind spots, Wade says, that keep home buyers
from making the most of their affordable home purchases and
building equity.
Regarding the home interest deduction, Wade
doesn't make any conclusions beyond that. But others might
conclude that, if lower-income people don't or can't take
advantage of the mortgage interest deduction, that makes it
all the more politically palatable to phase it out sooner
or later.
Given that Bush was talking in October about
giving tax breaks to home builders, and talking in November
about eliminating loopholes for special interests and simplifying
the tax code, industry groups figure that they might as well
go for a bite of the tax pie. After all, maybe Bush meant
what he said in October.
The home builders want that tax credit for building
affordable houses. Everyone in the real estate and mortgage
industries wants to keep the mortgage interest deduction.
And the mortgage insurance industry plans to try again to
pass a tax deduction for mortgage insurance premiums. This
year, the provision was removed in the conference committee.
Half of the House co-sponsored the bill to let
homeowners deduct the cost of private mortgage insurance,
as well as Federal Housing Administration and Veterans Administration
mortgage insurance. "It was a popular provision with virtually
no opposition to it, and the budget charge was relatively
modest -- I think $452 million over one year," says Jeff Lubar,
spokesman for the Mortgage Insurance Companies of America.
The president has promised to promote housing
in ways that have nothing to do with taxes. His goal is to
increase homeownership among minorities and immigrants, and
that means making it easier for lower-income renters to buy
houses.
Zero down payment program
The centerpiece of that effort is the Zero Downpayment Initiative.
Right now, federal law requires home buyers to make down payments
of at least 3 percent to qualify for FHA-insured loans. A flourishing
down payment assistance industry has grown up to get around
that requirement, and Bush has asked Congress to change the
law and allow people to get FHA-insured mortgages with zero
down.
A zero-down bill was introduced this year, but
didn't pass because of uncertainty over the cost.
Another way to meet Bush's housing objectives
is to require mortgage giants Fannie Mae and Freddie Mac to
fund more home loans for low- and moderate-income buyers.
This month, the federal housing department made just such
a proposal, which would require the companies to set aside
56 percent of their mortgage purchases for low- to moderate-income
loans, up from about 50 percent this year.
Fannie and Freddie have little choice but to
acquiesce, because the companies are fighting a war on another
front: the Bush administration has proposed a much tougher
regulatory structure for them.
The president hews closer to his anti-regulation
roots when it comes to home builders, who (unlike Fannie and
Freddie) overwhelmingly backed Bush in political donations.
In Bush's
October speech to the builders, right after he endorsed
a tax cut to benefit builders, he promised to get the government
off their backs. Regulatory barriers add as much as 35 percent
to the costs of new houses, he said.
"I understand there's a need for sensible regulation,"
Bush added, "but when you have overlapping regulations that
send confusing signals, when you have the federal government,
the state government, the local governments creating obstacles
for home building, it is time to reduce those regulations."
Amen to that, says Howard, head of the Home
Builders, who coins a word to describe some regulations: some
are duplicative, he says, and some are even "triplicative."
What it all comes down to, says Douglas Magid,
chief executive of Century 21 William B. May, a real estate
brokerage in Manhattan, is "continuing support for business-friendly
policies." Bush believes that rising homeownership is a sign
of a strong economy, Magid says, and the entire housing industry
agrees.
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