Ed Pinto, Great American

HFNY

Pinto > Mel Watts

americanbanker.com/bankthink/why-the-20-year-mortgage-is-the-answer-to-housing-finance-mess-1079206-1.html

GreenRiverGatorz

Good read. I am, however, questioning this particular passage:

"Today's tax code promotes a lifetime of indebtedness by incenting homeowners to take out large loans for lengthy terms so as to "maximize the value" of the deduction."

I'm firmly on the "most Americans are fucking stupid" bandwagon, but is there anything to suggest that this is even remotely true? How dumb would one have to be to actually pursue more mortgage debt because of a higher tax deduction? Someone would have to be pretty mathematically illiterate to actually think that would create a net financial benefit for them.

MisterEm

GreenRiverGatorz said:

Good read. I am, however, questioning this particular passage:

I'm firmly on the "most Americans are fucking stupid" bandwagon, but is there anything to suggest that this is even remotely true? How dumb would one have to be to actually pursue more mortgage debt because of a higher tax deduction? Someone would have to be pretty mathematically illiterate to actually think that would create a net financial benefit for them.

Depreceation deductions and 1031 exchanges, for $1000 Alex.

GreenRiverGatorz

MisterEm said:

GreenRiverGatorz said:

Good read. I am, however, questioning this particular passage:

I'm firmly on the "most Americans are fucking stupid" bandwagon, but is there anything to suggest that this is even remotely true? How dumb would one have to be to actually pursue more mortgage debt because of a higher tax deduction? Someone would have to be pretty mathematically illiterate to actually think that would create a net financial benefit for them.

Depreceation deductions and 1031 exchanges, for $1000 Alex.

I'm not following where you're going with this.

Depreciation deductions for personal use do not exist, and of course the vast majority of the homeowners who use the mortgage interest deduction do not use their home for any sort of business use. And even if they did, the tax deductions would almost certainly not even come close to offsetting the increased mortgage interest payments they would be making.

As for 1031 exchanges, I don't know what capital gains deferrals have to do with the mortgage interest deduction, so I'll let you clarify.

Kaepsknee

GreenRiverGatorz said:

Good read. I am, however, questioning this particular passage:

"Today's tax code promotes a lifetime of indebtedness by incenting homeowners to take out large loans for lengthy terms so as to "maximize the value" of the deduction."

I'm firmly on the "most Americans are fucking stupid" bandwagon, but is there anything to suggest that this is even remotely true? How dumb would one have to be to actually pursue more mortgage debt because of a higher tax deduction? Someone would have to be pretty mathematically illiterate to actually think that would create a net financial benefit for them.

Oh cmon! Wouldn't you rather have the deduction that amounts to one free house payment per year for 10 extra years rather than paying an extra 10% on your mortgage payment and not having any payment for 10 years and beyond?

HFNY

Keep in mind that the deduction also applies to 2nd (and more) homes. If a household's income is $400k, they've already refinanced into a 15 year mortgage (or shorter), and are getting closer to paying it off, that household has an incentive to buy a 2nd home with a reasonably sized mortgage so that they can deduct the interest payments from their income while deploying their money towards an asset that usually appreciates in value over the medium-term (at least keeping pace with inflation but sometimes increasing faster).

Recent studies have shown that getting rid of the home mortgage interest deduction for anything but primary houses would raise $10 billion a year in tax revenues but the National Association of Realtors, especially those in vacation areas, would fight it tooth and nail to protect their rent-seeking.

sarktastic

Reducing demand at the top of a market... an artificially induced top no less, would put downward pressure on housing prices and bank balance sheets. It would also result in a tightening in overall lending standards due to weak collateral.

HFNY

But if not now, when? It can be a slow / partial withdrawal of artificial support, starting with non-primary homes. Lower the mortgage amounts on them by $250k a year so that in 2018, only interest paid on $750k mortgage on a 2nd home is deductible, then $500k in 2019, $250k in 2020, and then zero in 2021.

As for primary residencies, it should be lowered $50k a year starting in 2022 (after the vacation home deduction expires so as to slowly wean people off the market distortions one at a time) down to somewhere between $500-$750k.

sarktastic said:

Reducing demand at the top of a market... an artificially induced top no less, would put downward pressure on housing prices and bank balance sheets. It would also result in a tightening in overall lending standards due to weak collateral.

priapism

Without massive debt, most Americans would just chill out at home and smoke weed.