Housing lobby's win will cost U.S. $600 billion
Congressional efforts to reduce the U.S. deficit revived tax breaks for mortgage insurance and extended interest deductions for homeowners that will cost the government $600 billion over five years.
"This is a meaningful win for the housing lobby generally and more specifically the mortgage insurance industry," said Isaac Boltansky, an analyst for Compass Point Research & Trading LLC in Washington. "The mortgage finance establishment fared relatively well."
Congress raced to pass the fiscal bill on Jan. 1 to avoid sweeping spending cuts and tax increases that jeopardized the economic recovery. Legislators also left in place a 2007 tax break for homeowners whose debt is forgiven by lenders and preserved exemptions for profits on home sales, while maintaining mortgage-interest deductions that Compass Point estimates will cost $600 billion over the next five years.
The moves could help a housing market that last year started to reverse a five-year slump that pushed the U.S. economy into the longest recession since the 1930s. Homeowners will save about $100 billion this year from mortgage interest deductions, according to Compass Point, helping to make buying more affordable relative to renting. Congress, meanwhile, allowed payroll tax cuts to lapse, which will pull more than $100 billion from the economy, the primary reason why 77.1 percent of U.S. households face higher taxes in 2013, according to the nonpartisan Tax Policy Center.
"What it seems to have come down to is trying to do as little damage to the nation's housing market as they possibly could," said Keith Gumbinger, vice president of HSH.com, a mortgage-data firm in Riverdale, New Jersey.
Borrowers with mortgage insurance, from private guarantors or the U.S. government, will be able to deduct their premiums. That perquisite had expired at the end of 2011.
The change will apply retroactively to 2012 for homeowners making less than $110,000 a year and will remain in force this year, according to a summary of legislative changes from the National Association of Realtors.
"The industry's ability to close on this priority demonstrates its clout on Capitol Hill, which will be needed in 2013," Boltansky wrote Wednesday in a report.
Almost 3.6 million taxpayers claimed the deduction for mortgage insurance in 2009, the most recent year for which Internal Revenue Service data is available. They deducted almost $5.5 billion in premiums, for a total tax benefit of more than $700 million, according to the National Association of Homebuilders in Washington.
Banks often require buyers who make a down payment of less than 20 percent to get mortgage insurance, which pays lenders when homeowners default or foreclosures fail to recoup costs.