Subprime Meltdown, the US Housing Market & the Direction of the US Economy in 2009 and 2010

[mauslick]

got news for you all, when the upper decks (you loved politicians, all of them) will have life rafts,
the rest of us will be left to swim.......

obama will be sitting next to boehner saying " that was a close one, let's toast" crack open a bottle of the best champagne avaiable probably a gift from a special interest group and they will all row away with fat bank accounts, speaking fees, book deals, positions in the unions/corporations
and you guys will still be sitting here looking to blame anyone but yourselves.....
the american people did this to themselves by voting these banking proxies in, the banks own both parties and love the distraction.........

best of luck gang it's been a fun empire

[titleist1976]

Analysis: Mortgage tax break eyed to help cut debt

On Thursday July 28, 2011, 11:41 am EDT
By Margaret Chadbourn

WASHINGTON (Reuters) - Lawmakers are eyeing a popular tax deduction for mortgage interest as they look for ways to fill record budget deficits, although any changes are likely to await a broad reworking of the tax code.

Two forces are conspiring in a way that could put the long-cherished deduction on the chopping block: a need to raise more revenues and a feeling among policymakers that government incentives for housing have been too generous.

"It's a confluence of several factors. First, it's such a large tax break," said Donald Marron, director of the Urban-Brookings Tax Policy Center. "And the tax treatment of housing is much more favorable than we provide for most other investments people undertake."

A bipartisan group of U.S. senators, known as the "Gang of Six," pushed a debt plan last week that embraced changing the deduction to help achieve $1 trillion in revenues and reduce deficits by nearly $4 trillion over the next decade.

The proposal comes as Democrats and Republicans rushed on Thursday to rework rival deficit reduction plans to avert a crippling U.S. default.

The government has allowed home buyers to deduct a portion of the interest paid on mortgages for decades as a way to promote home ownership.

Efforts to curtail the deduction have gained ground as a way to curb the nation's growing debt, and while the latest dueling deficit-cutting plans in Congress do not commit to take the tax break away, plans to curb it could resurface.

The plan left it to congressional committees to decide how the tax break would be trimmed, but any legislation should "reform, not eliminate" the deduction.

The deduction, which costs the U.S. Treasury about $100 billion a year, is the largest subsidy for homeowners and the nation's third-largest tax break, according to the Center for American Progress, a liberal policy research group.

About 35 million households claimed the mortgage interest deduction in 2009, according to the Joint Committee on Taxation, the congressional scorekeeper on taxes.

The deduction's popularity and its connection to the American dream of home ownership has made it sacrosanct politically. But that may have changed.

"There is more interest in the mortgage interest deduction, and it has more momentum than it has had in the past," said Brian Gardner, senior vice president for Washington research at Keefe Bruyette & Woods Inc.

TURNING DEDUCTION INTO TAX CREDIT

A presidential budget commission last year proposed turning the deduction into a 12 percent tax credit for buyers. The plan, which languished after being presented to Congress in December, would have capped the credit at $500,000 in mortgage debt and limited it to primary residences.

Gardner said Congress was more likely to revive that proposal than wipe out tax-related support for housing altogether.

However, he said any consideration of the measure would likely await a broader debate on tax reform -- and that will not heat up until lawmakers return from an August break.

"It's a tough issue to handle, and if it is not married to broader tax reform then it just becomes tougher."

Even then, the powerful housing industry lobby could persuade Republicans and Democrats alike to keep the deduction in place.

The Mortgage Bankers Association (MBA) and the National Association of Realtors are arguing that repeal would undermine a weak housing recovery.

"The mortgage interest deduction is important because it keeps the housing market functioning," said MBA President David Stevens. "We are very concerned about what would happen as the outcome to an industry that fuels 30 percent of gross domestic product if it was removed."

POST-BUBBLE BLUES

The deduction has frequently been criticized for providing a greater benefit to taxpayers with higher incomes than those further down the scale. The maximum amount of eligible mortgage debt for the deduction is currently $1 million.

However, John Weicher, director of the Hudson Institute's Center for Housing and Financial Markets, said a repeal would mostly pinch households with incomes between $75,000 and

$200,000.

Weicher, who served in the U.S. Department of Housing and Urban Development during the administration of former president George W. Bush said killing the deduction would not only harm the housing market but undermine the goal of fostering home ownership.

"It would put buyers at a disadvantage and create a new bias in the tax code that favors renting rather than owning your own home," he said.

But many analysts argue that incentives for home ownership need to be realigned to the prevent type of bubble that led to the devastating 2007-2009 financial crisis.

The U.S. home ownership rate peaked at 69.2 percent of the total U.S. population in 2004, according to the U.S. Census Bureau, as lax lending standards fueled home sales.

By the first quarter of this year, it dropped to 66.4 percent.

"There is a longstanding American emphasis on home ownership that has gone to extremes," Urban-Brookings' Marron said. "It is something that encourages people to take on a lot of mortgage debt. To be frank, mortgage debt isn't as popular today as it used to be."

(Editing by Jeffrey Benkoe)

Oh wow... now they've gone too far. Eff them, I will walk. Gang of douchebags.

[SAPJetta]

Kick the housing market while it is down. Brilliant!

Let me know when people are finally ready to throw all of them out on the street. I'll be first in line to put a boot in their ass.

[titleist1976]

Kick the housing market while it is down. Brilliant!

Exactly. I know a good handful of people who would rather walk at that point.

[dirtyfingers]

Exactly. I know a good handful of people who would rather walk at that point.

Count me as one of them.

As soon as the tax write off benefit goes into effect I'm packing my crap up and moving it to my families, renting a po box and directing all mail to it, and squatting in "my" house for as long as possible.

[beng]

Imagine the shift from owning to renting... and yet another policy that would ultimately result in an even greater transfer or wealth from the lower/middle class to the upper class.

[maskedSONY]

Imagine the shift from owning to renting... and yet another policy that would ultimately result in an even greater transfer or wealth from the lower/middle class to the upper class.

I thought Pelosi put it nicely, something she doesn't do that often.

"The Speaker has said that between him and the president they have a different vision of America and that's how come their budget proposals are different," she sad. "Quite different...We get the sacrifice, they get the wealth."

from: http://tpmdc.talkingpointsmemo.com/2...-plan.php#more

[JCJetta]

Imagine the shift from owning to renting... and yet another policy that would ultimately result in an even greater transfer or wealth from the lower/middle class to the upper class.

Time to buy up cheap potential rental properties!

And what a shift indeed - the first time homebuyer credit was 2008-2010. Talk about a reversal in that way of thinking!

[Mike!]

For some perspective... relatively speaking there was no housing collapse in Canada. There may be a bubble burst forthcoming in some areas, but not on the scale seen in the US. Canada's housing market is effectively strong, and home ownership rates as high or higher than the US.

Canada has also never had a mortgage interest deduction.

I realize this is a "kick 'em while they're down" scenario, but presuming outright decline in homeownership simply based on eliminating a deduction is somewhat hyperbolic. When compared to other factors such as growing income gap, unemployment, politicians and policies that continue to favor the wealthy over the needy, eliminating a tax deduction is probably a less important thing to raise a stink about.

[beng]

Off the cliff we go!

[SAPJetta]

[maskedSONY]

For some perspective... relatively speaking there was no housing collapse in Canada. There may be a bubble burst forthcoming in some areas, but not on the scale seen in the US. Canada's housing market is effectively strong, and home ownership rates as high or higher than the US.

Canada has also never had a mortgage interest deduction.

I realize this is a "kick 'em while they're down" scenario, but presuming outright decline in homeownership simply based on eliminating a deduction is somewhat hyperbolic. When compared to other factors such as growing income gap, unemployment, politicians and policies that continue to favor the wealthy over the needy, eliminating a tax deduction is probably a less important thing to raise a stink about.

Your system also has some serious regulations to it. If you don't have the money, the banks will not bother helping you. I forgot the analogy my uncle used but housing is pretty tightly regulated up there.

[Mike!]

Your system also has some serious regulations to it. If you don't have the money, the banks will not bother helping you. I forgot the analogy my uncle used but housing is pretty tightly regulated up there.

Absolutely. The whole mortgage system works very differently, but the end result is that regulations are tighter with regards to how much you can be approved for, minimum down payments, that sort of thing. There's tangential benefits to this too, like stability in the banking industry (no bank failures in Canada... there's basically only a handful of banks, mostly national, rather than a myriad of local banks).

The interesting thing to me is despite this, as best as I have looked up, homeownership rates are in the high 60s% much like the US.

[mauslick]

nancy pelosi will personally sacrifice nothing under any circumstance, she will retire with the same benifits package all these politicos have so generously given themselves and rest assured they no way connnected to anything a 'common citizen' would get or be force to scacrifice

politcal theater at it's best...........has anyone one of thes politicians keep to their campaign promises?.......

the only one that seems to talk any sense is ron paul..........wether you like him or not.........returning to 'sound money' makes sense because of that he's labeled a nut

the titanic is going down and guess who will get the life rafts?..........our hardworking 'elite'

[1stRabbit]

Here's how my bank is dealing with the debt crisis:

Government Default Contingency Plan

Due to the uncertainty surrounding the national debt ceiling, PenFed would like to assure our membership that in the event the issue is not resolved in August and causes a disruption in federal government payments, PenFed members who regularly have their pay direct deposited to PenFed that are military or civilian employees and retirees of the federal government, as well as Social Security recipients, will have their August deposits advanced as scheduled in anticipation of receiving the actual deposit once the debt ceiling issue is resolved.

Should it be necessary, PenFed will be advancing these August deposits to provide assistance to our valued members. Members who have deposits advanced will need to repay the amount of funds advanced within 90 days from the date funds are advanced.

Also a link to their contingency plans: https://www.penfed.org/pdf/Final_Gov...lan_072711.pdf

[Tornado2dr]

Imagine the shift from owning to renting... and yet another policy that would ultimately result in an even greater transfer or wealth from the lower/middle class to the upper class.

I wouldn't forsee some great tidal shift from owning to renting, but I would definitely see another great big hit to the economy- I don't think people will up and sell their homes/not buy due to the lack of deduction, but I do see them spending far less as consumers fo small and large items.

[jnm2.0t]

It's not a bad idea to phase in an elimination of the mortgage interest deduction, but $500k would be too low as a starter. I'd be okay with $1M which I have heard tossed around earlier.

[Tornado2dr]

It's not a bad idea to phase in an elimination of the mortgage interest deduction, but $500k would be too low as a starter. I'd be okay with $1M which I have heard tossed around earlier.

Be honest, your home was appraised at $995,000.00?

I agree. Any reduction/elimination of the deduction would certainly have to be "phased in" over a number of years, and go from high value to lower value homes.

[GeoffD]

It's not a bad idea to phase in an elimination of the mortgage interest deduction, but $500k would be too low as a starter. I'd be okay with $1M which I have heard tossed around earlier.

I think it should be regionally adjusted. You shouldn't be able to write off interest for more than the median house where you live. In Boston, that's $350K. In Dallas, it's $145K.

[SAPJetta]

How small do you make the regions?

[bubbagti]

How small do you make the regions?

By Zip Code?

[dunhamjr]

For some perspective... relatively speaking there was no housing collapse in Canada. There may be a bubble burst forthcoming in some areas, but not on the scale seen in the US. Canada's housing market is effectively strong, and home ownership rates as high or higher than the US.

Canada has also never had a mortgage interest deduction.

I realize this is a "kick 'em while they're down" scenario, but presuming outright decline in homeownership simply based on eliminating a deduction is somewhat hyperbolic. When compared to other factors such as growing income gap, unemployment, politicians and policies that continue to favor the wealthy over the needy, eliminating a tax deduction is probably a less important thing to raise a stink about.

I think taking the mortgage interest deduction away will have a much bigger affect on ownership than you are giving it credit for. Its going to be an absolutely HUGE swing in the year end tax bill for MANY many families.

The big problem that I don't think you are thinking about is in Canada they never had this credit to take away... so the system and the people involved worked around that and made their way without it.

In the US, people are used to this deduction. Some to the point, that it is the only reason that they even bought houses. So taking this away is going to hurt many people. Its going to remove the income that they used to have to pay their mortgage, which then will go to pay taxes instead. Its going to take money straight out of peoples pockets easily to the tune of hundreds of dollars per month.

Its just not going to be good if this is something they actually decide to do.

[Mike!]

I think it should be regionally adjusted. You shouldn't be able to write off interest for more than the median house where you live. In Boston, that's $350K. In Dallas, it's $145K.

Does the tax code really need more bloat and complication like that? I'd think it better to eliminate it altogether, maybe with a partially-offsetting overall rate cut or something.

Simplicity is underrated, imo.

[SAPJetta]

By Zip Code?

See MikeNoGo's answer. At some point it becomes an administrative nightmare. The tax code is already a mess. Breaking something down to a zip code level would just make it even worse.

I like the idea of a phased in approach from the top down or just leave it alone completely. There are already plenty of people getting killed by the economy and upside down on their homes. For those folks holding on by a string, they don't need an additional chunk of money taken away each month.

[ValveCoverGasket]

For those folks holding on by a string, they don't need an additional chunk of money taken away each month.

theres never a good time to raise taxes...

[SAPJetta]

Agreed.

[nezraM]

"The bankers own the earth. Take it away from them, but leave them the power to create money, they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money."

-Sir Josiah Stamp, (Director-Bank of England)

[Tornado2dr]

In the US, people are used to this deduction. Some to the point, that it is the only reason that they even bought houses. So taking this away is going to hurt many people. Its going to remove the income that they used to have to pay their mortgage, which then will go to pay taxes instead. Its going to take money straight out of peoples pockets easily to the tune of hundreds of dollars per month.

I really would like to see data on this. Even knowing that human stupidity knows no bounds, I have a hard time thinking of a price point where the tax benefit is a make or break for deciding to buy a house.

[jnm2.0t]

I really would like to see data on this. Even knowing that human stupidity knows no bounds, I have a hard time thinking of a price point where the tax benefit is a make or break for deciding to buy a house.

I don't see it happening either.

[zukiphile]

I really would like to see data on this. Even knowing that human stupidity knows no bounds, I have a hard time thinking of a price point where the tax benefit is a make or break for deciding to buy a house.

Arguably one can't perform ana anlysis of whether he should rent or buy without knowing whether interest will be deductible.

At the beginning of a 15 year loan at current rates, a bit less than half of each payment goes to interest. If you have a 3.7% rate on a $400,000 loan you are looking at payments of about $2,900 per month, almost $35,000 per year. If $17,000 of that is interest and your marginal rate is 35%, then the difference between a deductible or non-deductible interest payment is nearly $6,000 per year.

If it isn't deductible and you want the same net cost, you can only borrow about $330,000.

That isn't a trivial difference.

[zukiphile]

Your #s are off. You only get a benefit from the mortgage interest that is incremental to the standard deduction which is $11,600 next year. If you have $17,000 interest the only true benefit is the $5,400 extra the standard wouldn't have given you anyways.

I acknowledge your arithmetic point, but would not assume that a mortgage interest deduction would be one's sole deduction.

[jnm2.0t]

Arguably one can't perform ana anlysis of whether he should rent or buy without knowing whether interest will be deductible.

At the beginning of a 15 year loan at current rates, a bit less than half of each payment goes to interest. If you have a 3.7% rate on a $400,000 loan you are looking at payments of about $2,900 per month, almost $35,000 per year. If $17,000 of that is interest and your marginal rate is 35%, then the difference between a deductible or non-deductible interest payment is nearly $6,000 per year.

If it isn't deductible and you want the same net cost, you can only borrow about $330,000.

That isn't a trivial difference.

Your #s are off. You only get a benefit from the mortgage interest that is incremental to the standard deduction which is $11,600 next year. If you have $17,000 interest the only true benefit is the $5,400 extra the standard wouldn't have given you anyways. Even at 35% that's only $1,890. If you're in the 35% bracket and $1,890 a year is making or breaking a housing decision something else is wrong. Even at the 25% bracket the savings of $1,350 or a little over $100 a month shouldn't be making or breaking too many decisions.

[zukiphile]

Your #s are off. You only get a benefit from the mortgage interest that is incremental to the standard deduction which is $11,600 next year.

Unless you've already accumulated that in other itemised deductions in which case the full marginal rate on the interest is the correct measure.

Given real estate and local income taxes, it is hard to imagine the homeowner who would have mortgage interest as his sole deduction.

[PolskiHetzen]

It's not a bad idea to phase in an elimination of the mortgage interest deduction, but $500k would be too low as a starter. I'd be okay with $1M which I have heard tossed around earlier.

wait wut? It's already at 1,000,000? or are you talking about second homes?

http://www.irs.gov/pub/irs-pdf/p936.pdf

[nezraM]

Ooooh such a fascinating debate, Richard wants to throw his two cents in.