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Wednesday, December 4, 2013

Don't gore my sacred ox...

Lately there’s been a fairly emphatic and certainly urgent effort by the National Association of Realtors and all of its affiliate state and local associations to rally the troops (Realtors around the country) to protect one of the scared oxen of real estate – the Mortgage Interest Deduction (MID).  President Obama’s budget guru’s have begun looking at reducing or eliminate the MID as a budget balancing measure.

From the National Association of Realtors® (NAR®) site comes this report - In a letter, NATIONAL ASSOCIATION OF REALTORS ® President Ron Phipps said REALTORS ® would reject any tax law changes, including modifications to MID that would impair Americans’ ability to own their homes and to invest in real estate. “The federal policy choice to support home ownership has been in the Internal Revenue Code since its inception,” he said. “We see no valid reason to undermine that basic decision. Indeed, we believe that the only viable tax system is one that would continue to nurture home ownership.”

NAR estimates that any paring back of MID, whether at once or over time, would reduce home values by an average 15 percent. Phipps called that level of wealth destruction “unacceptable,” particularly since “this loss of value is never fully recouped” and it would come at a time when the U.S. economy can’t turn around without a stable housing sector.

I’m not sure what impact there would be if a bunch of Realtors® “reject” the law. How does one go about rejecting a law? If just the Realtors reject the law do others still have to follow it? How does that help the homeowners? Can they reject it, too? Maybe, if they know a Realtor, they can? I suppose that Mr. Phillips meant to say that the Realtors will vigorously oppose the passage of any new law that takes away this deduction.

Another recent effort of almost the same level of urgency concerns laws impacting Flood Insurance that are just now being implemented. From a press release on the Federal Emergency Management Agency (FEMA) site comes this information -  In July 2012, the U.S. Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) which calls on the Federal Emergency Management Agency (FEMA), and other agencies, to make a number of changes to the way the National Flood Insurance Program (NFIP) is run. Some of these changes already have occurred, and others will be implemented in the coming months. Key provisions of the legislation will require the NFIP to raise rates to reflect true flood risk, make the program more financially stable, and change how Flood Insurance Rate Map (FIRM) updates impact policyholders. The changes will mean premium rate increases for some—but not all—policyholders over time

The National Association of Realtors is fighting this issue hard, too, and backing efforts to get a delay on its implementation. A recent NAR press release states - “The bipartisan ‘Homeowner Flood Insurance Affordability Act’ introduced  in the Senate by Sens. Robert Mendendez, D-N.J.; Johnny Isakson, R-Ga.; and Mary Landrieu, D-La., and in the House by Reps. Michael Grimm, R-N.Y., and Maxine Waters, D-Calif., proposes to help millions of homeowners who are facing sudden and extreme increases in flood insurance premiums, which are an unintended consequence of legislation to reform the National Flood Insurance Program.

“The bill takes the crucial first step toward delaying further implementation of some rate increases in the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12). This will allow the Federal Emergency Management Agency to complete an affordability study that was mandated by BW-12; propose targeted regulations to address any affordability issues found in the study; and give Congress adequate time to review those regulations.

There are a whole bunch of red flags that go up when I read something like that last sentence above. This is a rear guard action, meant primarily to stop or slow down the implementation of the law, while opponents try to find ways to water it down or shift the cost burden back onto someone else (read that as the taxpayers).

There are two other homeowner tax breaks that expire at the end of the year with a good probability that they will not be extended by Congress. One is the deductibility of Private Mortgage Insurance payments and the other concerns not being taxed on the forgiveness of some amount of the debit when doing a short sale or foreclosure. Both have been significant during the downturn; however, with short sales and foreclosures going down the latter is less important today. Unless Congress acts before January one, both go away for 2014.

Focusing upon the two bigger issues, one must ask is the sky really falling this time or are we once again just subject to the loud protestations of the owners of the sacred oxen that are in danger of being gored?

I have less sympathy and empathy on the insurance issue. I’ve listened to so many news reports over the years from people who live in flood plains saying that they planned to go back and rebuild, again and again. With global warming starting to raise sea levels much of our current coastline may either be underwater or will flood every time there’s a storm. It just doesn’t make long-term sense to keep rebuilding and rebuilding when you know it will flood out again with the next storm. There have been programs in the past for buying out these homeowners, so that they could move to safer locations and I think something along those lines is the only viable long-term solution to this problem.

As for the tax deduction issue; it’s tough to ignore that this is just really a tax increase. It’s the cowards way out for congress and the administration to slowly chip away at tax breaks that people have become used to because they are too afraid to suggest any tax increases or to figure out other ways to deal with the budget deficits. I’d suggest that they take their own budget bull by the horns before they come looking to gore this sacred ox. In fairness, as a disclosure; I don’t have a mortgage any more so I don’t get this deduction. I’d rather be without a house payment than be looking forward to the deduction. I certainly did count on it to help with taxes when I did have a mortgage. Perhaps a slow phase out of this tax break is an answer.

Being from the Detroit area, I’m used to the laments from the automotive companies and local press every time Congress passes new legislation on fuel economy or safety standards. It’s always a Chicken Little reprise of “the sky is falling;” yet it always turns out OK and the industry doesn’t go under just because Congress mandated something new. People need cars, just like people need houses.


Make no mistake about it; these are both sacred oxen to many Realtors and to NAR. Both issues could impact homeownership in a negative way. Both will increase the cost of home ownership, either directly or through the loss of a tax benefit. That scares the bejesus out of Realtors. Things are tough enough already, with a fragile economy and tight inventory holding back the market. Adding increased cost for many and a loss of a great tax break for all will give more people further pause when considering buying a home. But one must still ask, if these two issues are enough to stop someone who wants and needs to buy a home from doing so? I guess that I don’t think so.

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