Big ideas for cutting deficit, but they'd hurt

[goof2]

Originally Posted by fasternyou929

I think most of us on this board knew SS would be a black hole we just threw money into for most of our working lives, for nothing in return.

However, nicking the deduction for mortgage interest could unsettle a barely-recovering housing market all over again. With homes making up the bulk of American's net worth, that could be ugly. The last thing we need is to make homeownership less appealing.

The housing market is still screwed, possibly worse than it was before. The majority of people just don't realize it yet.

[ontwo]

Originally Posted by goof2

The housing market is still screwed, possibly worse than it was before. The majority of people just don't realize it yet.

Yep. The biggest issues with the housing collapse were overinflated prices and fraud. The prices are starting to correct, and the shitty leanding practices have been reduced. I think it will go back to the way it was 20 years ago. If you want a house, save up a down payment and keep your credit in line. I don't think the mortgage interest deduction will be the determining factor for home ownership.

[shmike]

Originally Posted by fasternyou929

I think most of us on this board knew SS would be a black hole we just threw money into for most of our working lives, for nothing in return.

However, nicking the deduction for mortgage interest could unsettle a barely-recovering housing market all over again. With homes making up the bulk of American's net worth, that could be ugly. The last thing we need is to make homeownership less appealing.

That was my first thought too.

The plan also calls for a major overhaul of both the individual income tax and the corporate tax systems, with the idea of lowering overall tax rates, simplifying the tax code and broadening the taxpayer base. The top income tax rate would drop from 35 percent to 23 percent.

If the deductions being taken away was accompanied by a full revamp of the tax code, buying a home could become attractive once again.

Not because of the interest deduction but because the country would be working more, saving more, and spending more wisely. It's a pretty pie-in-the-sky dream but so is the proposed plan.

[goof2]

Originally Posted by ontwo

Yep. The biggest issues with the housing collapse were overinflated prices and fraud. The prices are starting to correct, and the shitty leanding practices have been reduced. I think it will go back to the way it was 20 years ago. If you want a house, save up a down payment and keep your credit in line. I don't think the mortgage interest deduction will be the determining factor for home ownership.

There are still a ton of homeowners out there holding adjustable rate mortgages they can only afford because interest rates are currently about as low as they can get. Once interest rates go up it will create a new wave of foreclosures. This is a real problem since there were already a record number of foreclosures in September. I don't believe the "housing crisis" is over by a long shot, to the point where I think another TARP program may be required.

[shmike]

Originally Posted by goof2

There are still a ton of homeowners out there holding adjustable rate mortgages they can only afford because interest rates are currently about as low as they can get. Once interest rates go up it will create a new wave of foreclosures. This is a real problem since there were already a record number of foreclosures in September. I don't believe the "housing crisis" is over by a long shot, to the point where I think another TARP program may be required.

Yep.

Even if rates never rise, many of the interest only / ARM's were balloon mortgages. When that ballon payment comes due, the owner will need to find a new mortgage to finance the payment.

Unfortunately, since the property may be worth significantly less than what is owed, there will be no mortgages to be found, good credit or not.

[Homeslice]

Rates will be held low for as long as possible, becuase the gov't thinks inflation is better than deflation. And as for balloon schemes, what % of the mortgage market are we talking about? Balloons can't be more than 5-10% of the market.

[shmike]

Originally Posted by Homeslice

Rates will be held low for as long as possible, becuase the gov't thinks inflation is better than deflation. And as for balloon schemes, what % of the mortgage market are we talking about? Balloons can't be more than 5-10% of the market.

I have no idea.

I'd imagine it is pretty location specific. Areas you saw rise fast and fall hard would have the largest percentages.

Living in S. Florida, it seems like the majority of purchases during the boom days were done that way (especially on "investment" properties). I've even known people with negative amortization loans. :shock:

A lot of those have reset already. Many have not.

Like goof said, there may be a second wave still coming.

[fasternyou929]

Originally Posted by shmike

If the deductions being taken away was accompanied by a full revamp of the tax code, buying a home could become attractive once again.

Not because of the interest deduction but because the country would be working more, saving more, and spending more wisely. It's a pretty pie-in-the-sky dream but so is the proposed plan.

True, but I'm far more skeptical that a major tax overhaul is worked out than I am about them dropping the mortgage interest deduction. lol

To goof's point, as someone that "did it right" and put 20% down on my house, I can guarantee you when you elminate the ability to write off interest payments, it will affect the appeal of home ownership.

Which brings us full circle... if the tax overhaul happens and actually benefits the middle class, it may not have such an impact. But if status-quo remains and they drop that benefit, I think we'll see home values drop more as demand slows.

[goof2]

Originally Posted by Homeslice

Rates will be held low for as long as possible, becuase the gov't thinks inflation is better than deflation. And as for balloon schemes, what % of the mortgage market are we talking about? Balloons can't be more than 5-10% of the market.

Rates have already been held about as low as possible for quite a while, despite my belief that inflation has been occurring.

[Homeslice]

Originally Posted by goof2

Rates have already been held about as low as possible for quite a while, despite my belief that inflation has been occurring.

And they will continue to do so. There is no way in hell they would raise rates in the near future, considering the unemployment and housing situations we're in.