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Lenders caution against reducing mortgage interest deduction

November 12, 2010 - The trimming of a key tax incentive that typically encourages the relocation of many homebuyers has drawn the attention of leaders from within the mortgage industry.

Michael D. Berman, chairman of the Mortgage Bankers Association, spoke out against a draft proposal from the co-chairs of the National Commission on Fiscal Responsibility and Reform. That proposal would limit mortgage interest deductions - when homeowners reduce their taxable income by deducting the interest they pay on their mortgage - to exclude second homes, home equity loans and mortgages over $500,000. Such an exclusion could have significant tax ramifications for buyers moving to high-end homes or purchasing second properties. The proposal is intended to trim the national debt, but Berman said it could hamper the real estate market's recovery.

"Given the fragile state of the nation's housing market, now is not the time to be scaling back incentives for homeownership," he said. "The mortgage interest deduction is one of the pillars of our national housing policy, and limiting its use will have negative repercussions for consumers and home values up and down the housing chain."

The proposal could impact buyers moving into homes using jumbo mortgages in excess of $500,000. The Wall Street Journal reported that banks originated $18 million in jumbo mortgages during this year's second quarter, a 20 percent rise from the previous quarter, showing a growing willingness amongst lenders to handle these loans.
 

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