The week of May 13th through 17th I joined over 10,000 other Realtors for our Mid Year Meetings and Hill visits. Our ‘Realtor Party’ had three issues to discuss our Senators and Representatives that directly or indirectly affect every homeowner in America. The issues were: Taxation, FHA reform and Fannie Mae/Freddie Mac reform.
Taxation: Three areas of taxation were discussed. First the mortgage interest deduction or MID which has been in the tax code since the income tax was passed in 1913. For 100 years Congress has acknowledged the importance of home ownership on individuals and communities. Over 75% of homeowners use the deduction at some point during ownership. It has been estimated that doing away with the MID would drop the value of every home by 15%. Any change whether it be a cap on maximum deduction or the availability of the deduction on second homes would have a negative ripple effect through the market from top to bottom. The Realtor position is that the 100 year policy of encouraging home ownership is right and doing anything that would affect the recovery of housing could have devastating effects on the already anemic recovery.
The second area is deductability of state property taxes on federal tax returns. If that deduction were removed it would in effect mean you would be paying taxes on a tax or income you never really had? This policy change would again negatively affect the values of property and become a barrier to home ownership.
The third area is exemption from capital gains taxes on the sale of principal residence. The 25 year old exemption allows exemption of tax on the first $250,000 of gain on a principal residence for single filers and $500,000 gain for joint filers. For many people the largest savings account/retirement account they have is the equity in their home. High income people do pay capital gains taxes on their very expensive homes.
FHA: FHA is not a loan program but a loan insurance program that has worked successfully for over 60 years. It is counter cyclical in that it is used more in bad economic times than in good times. FHA loans were about the only loans being made from 2007 to 2010. Because it was virtually the only game in town and the high default rate it suffered unprecedented losses. In November 2012 they were down almost 13 billion dollars. Major changes were made and the deficit is now less than 1 billion dollars and by the end of the fiscal year in October the entire deficit may be eliminated. The absence of FHA would be devastating to first time home buyers and other credit worthy low down payment buyers. The Realtor position on FHA is to support the changes they have made but avoid over regulating to the point it is no longer viable.
Fannie Mae & Freddie Mac (Government Sponsored Entities – GSEs) provide a secondary market for mortgages. The secondary market is what makes the United States the only country in the world that offers 30 year mortgages which contributes to the a high level of home ownership compared to the rest of the world. Once again the GSEs had over 50 years of successful operation. There are those in Congress that want to do away with the GSEs and allow private enterprise to do their function. The fact is the GSEs were created because the private sector wouldn’t – couldn’t get the job done. The GSEs got huge infusions of tax dollars to stay viable when the housing bubble burst in 2007. Almost half of the dollars have since been repaid and there is no reason to believe the balance will not also be paid. Fannie and Freddie did get out of control for a period of time but are now back on track. The Realtor position is to tighten the rules, improve the oversight of the entities and make sure they remain viable for future generations of homeowners.
All seven of the Oregon congressional delegation share the ‘Realtor Party’ views on these issues.
If the public is interested in finding out more about issues involving housing go the website designed for the public’s use by the National Association of Realtors (NAR). HouseLogic.com