There are so many hot housing and mortgage issues being added into the legislative hopper in Washington every week that it makes your head spin. Last week the Obama administration proposed the first significant cutback in years for the mortgage interest deduction. In his budget outline, the president called for limiting current deductions, including the mortgage interest writeoff for upper-income households. The plan would cap deductions at a 28 percent tax rate, even if the taxpayer is paying taxes at a 35 percent marginal rate.

To illustrate: Say you spend $8,000 a year on mortgage interest. At a 35 percent marginal bracket, you currently can write off $2,800. Under the Obama proposal -- even though you pay federal taxes at a 35 percent rate, your mortgage deductions would be restricted to a 28 percent bracket write off -- $2,240.

That's a one-fifth reduction, but would only be imposed on households with income of $250,000 a year and up. Now, you may not be directly affected by this revenue-raising concept. But keep this in mind: There's the real possibility that this would be just the first step in a longer-range campaign to limit the mortgage interest writeoff for home owners in general. Asked by Realty Times for comment, Lawrence Yun, chief economist for the National Association of Realtors, said any limitation on mortgage deductions in the higher-cost segments of the market inevitably would have negative impacts on property values in every segment. “This will hurt not just the top two percent (of owners),” he said, “but the 75 million home owners” in the middle and lower-income brackets as well.

Still another major housing issue generating heat: Do you qualify for the Obama administration's refinancing program for certain home owners -- roughly four to five million borrowers with mortgages owned by Fannie Mae or Freddie Mac, whose property values have declined to the point where they can't refinance? Or are you effectively locked out because you have a jumbo loan, you live in a high-cost area, or your mortgage didn't otherwise fit into Fannie's or Freddie's conventional purchase menu?

If you're one of the lucky ones who qualify, you might soon receive a new loan with a fixed rate in the low five percent range, even if you have negative equity. But if you took out a jumbo or an “Alt-A” nonconforming mortgage to buy your house, the president's plan -- at least in its current version -- offers you no relief.

Sincerely:
TedDee Payne
The Payne Real Estate Team
Prudential Utah Real Estate
Associate Broker, Salt Lake Board of Realtors Hall of Fame MBA,CRP,CRS,CSP,GRI,ABR,ePro
801 860-2468(cell)*866 706-1961(toll free)Thepayneteam.net