Fund a homeowner bailout by taking away mortgage interest deduction?

In other words, taxpayers put up money to aid homeowners facing foreclosure, but those homeowners then lose the ability to claim a deduction for mortgage interest until the loan is repaid in full. The time period would vary based upon the amount of bailout money received - more money received would take longer to pay back. This discussion started here: http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=4209474&mesg_id=4209474 - I thought it could use its own thread to be made more accessible for DU financial wizard scrutiny.

Any chance this could provide the needed relief? Anyone have any thoughts about why it wouldn't, or why we shouldn't take this approach?

sounds fairly regressive.

:shrug:

It's using a built-in fund-collecting mechanism to secure repayment of a loan. I'd imagine that no homeowner would be FORCED to take the taxpayers' loan, but that it could be very helpful to those wishing to avoid foreclosure.

it's putting an additional burden on those that can least afford it.

if that's too difficult for you to understand, then maybe you need more schoolin' and/or life experience...:shrug:

That is "punishment" only in some wacky "free houses for everyone!" nonexistent utopia.

that's how the system works.
the mortgage payments ARE how they pay back the loan.

So, to throw your question back at you, if they're keeping up on the mortgage payments, why are they in foreclosure?

:eyes:

the idea being that mortgages with outrageous interest rates are re-written to more reasonable terms- and if they then keep up their regular mortgage payments- THAT is how they are paying off the loan, and as such are just as entitled to the mortgage-interest deduction as anyone else.

My idea of a bailout is a direct lump-sum loan to struggling homeowners, to be repaid with what would have been MID. So these people who are failing to pay on their agreed contracts should get free homes AND a tax break for taking taxpayer money to keep them in their homes? I don't think so.

also- i don't support changing the principle amount- only the onerous interest rates.

but the point still remains- the bailout loan IS their mortgage in your scenario- so if they are then keeping up with the mortgage payments, THEY are paying back the loan, so why should they be required to pay extra by forgoing the mortgage-interest deduction.

btw- what dollar amount of a "loan" to home-owners are you talking about? if it's something in the 200k and above range- it would take a VERY LONG time to pay it back using only a mortgage-interest deduction as the annual payment.

but that would enable people in trouble to stay in their homes, rather than losing them to foreclosure. I thought that was the goal? If you need $200K to retain your home, then forfeiting your MID without any other payback arrangement might mean you would never regain your equity. And why should you regain that equity at someone else's expense? The idea is to keep people in their homes, not to keep people in their homes and give them tax breaks *in addition* to taxpayer-funded bailout checks.

in your scenario- does the government buy up the mortgages, or do the banks keep the mortgages as written?

do the homeowners get a check from the government to use to pay off the mortgage, or do they use it to make regular mortgage payments to the bank? in other words, would they be making their regular original mortgage payments to their original lenders with the government money, or what?

and the homeowner owes what the homeowner owes - that's not rocket surgery. Unless there is some reason to invalidate the mortgage contract (such as fraud), then the contract should stand as written and agreed to by both parties. If homeowners get a bailout loan, they use it to pay their mortgage - to their mortgage lender. The bailout loan is paid back to the party that makes that loan (the taxpayers) through the mechanism of the "tax increase" the bailout beneficiary gets by forfeiting the MID.

if they pay off their mortgage, there wouldn't BE a mortgage interest deduction anyway. :shrug:

or are you proposing that they would continue to make regualr monthly payments? so would the bailout government loan be in one lump sum, or in monthly installments?

so- you feel that the lenders who used fraudulent practices, and wrote loans to people that they KNEW couldn't pay them back should be rewarded with taxpayer money?

where fraud is proven, the contracts may be nullified. Where there was no fraud (which is in the vast majority of cases), the contracts must be honored.

The banks are legitimately owed this money. Would you still feel that it's OK to stiff them if the loans came from individuals instead of banks?

enough to pay off their mortgage? is it in one lump sum, or in monthly installments?

and when you say "the bank is owed what the bank is owed"- are you talking about the payout balance on the loan if paid early in one lump sum, or the total cost of the loan over it's entire life, if regular monthly payments are made? because those are two VERY different amounts.

just what do you propose? the homeowner getting a pay-off loan, or getting a monthly check to pay the monthly mortgage payment with? or everyone just getting a set amount, like $50,000 or something? :shrug:

Eliminating the deduction is just punitive and regressive.

Oh, and political suicide. That deduction is damn near sacred.

Bake

A lot of people can't afford their homes without the deduction.

The people who are truly well off have no mortgage.

Seems to me that letting them stay in the home, but asking them to pay back the loan that enables them to stay there, is fair.

And is it really the case that the mortgage interest deduction is the difference between solvency and insolvency for very many people? If so, this speaks VOLUMES about people getting in way over their heads in debt.

You see if you can afford a house here without a mortgage deduction.

with no AC even.

To get a nice place is $1500 easy. One bedroom mind you with one parking.

:shrug:

lol.

I hate being cold.

I'm sure glad I NEVER wasted a day of the 15 years I lived in the Bay Area not being grateful. I lived in GRATITUDE each and every day .... knowing that one of life's hardest lessons is "I wish I'd appreciated it when I had it."

When I visit my brother I make him put the heater on. I'm such a wimp!

Their payment would not go up, they simply would not be gettin that refund check on their taxes next year or any year after this. Why on earth should home mortgage interest be exempt anyway? Why not credit card interest like it used to be?

loan, and were mis-lead into an ARM.

That rewards the malefactor.

I think the government needs to own these loans outright, all the way to the final payment.
Take all the potential profit from the lender.
defaulted properties will go into a pool of public housing.

The only loan I have is for my mortgage. Any credit card usage is paid off every month. Why should I be penalized twice - once for the bailout and again raise my taxes by eliminating the interest deduction.

Doesn't seem fair to me.

only those who accepted the bailout loan would lose their mortgage interest deduction - to facilitate their repayment of the loan. Those FUNDING the loan (i.e., everyone else) would retain their deduction.

and fucked up everything?

Yes, the top 1% needs to be paying much more in taxes. I don't think there's anyone here that would deny that.

Homeowners facing foreclosure don't have the money to make the payments, even after accounting for the tax break that homeownership provides.

If you reduce their payment $300 while increasing their taxes $300, you haven't helped.

who would get some type of long-term fixed mortgage from the government. Let's say they can't afford a $1000 a month house payment now. So by some program it's reduced to $800. They would lose something like a $7500 tax deduction in the early years of their 'loan'. That would increase their federal taxes by about $1900 a year or a tad over $150 a month. How would they be in a better position to make payments on anything? They would 'save' $200 a month on their new mortgage and lose $150 in taxes.

I'm not sure what form the bailout offer would take, but I guess I envision more of a lump-sum loan than a restructured mortgage. The loan would be paid back through tax money that wouldn't be collected if the mortgage interest deduction was allowed on it.

I'm confused. If the distressed homeowner gets a bailout and pays off a significant portion of the morgage, there would be very little interest paid anyway, thus little or no interest deduction that year. Presumably, with a significant chunk of the principle paid off, future year's interest deductions would be way down too.
One of the things that we need to be careful of is messing too much with the cost/benefit equation in housing. Make it too easy to get in = housing bubble, too punitive = price crash. You have to make it not only possible, but desirable to stay in the house--if all the people facing foreclosure get a bailout, but lose the incentive to stay, they'll sell the house, leading to further erosion of prices, requiring another bailout...

The miserly way we regard Americans who need help is contrasted against the trillions Congress throws away on weapons, industry, and their wealthy benefactors, as if their wealth makes them more deserving of the billions. The MID is another hand up for homeowners. They deserve that help if we're still dumping trillions into entities where moguls at the top are just amassing more wealth.

When has ANY corporation been required to forfeit other sustaining government benefits as a condition of government assistance?

There are some damned good ads running in NC right now attacking Dole on the issue of tax breaks for bad corporate citizens.

In the case of the OP, it makes no sense to provide a benefit and take another away when we're trying to get these folks on their feet.

so this is NOT imposing a burden, or taking away a benefit they're have if they declined the bailout money and were foreclosed on. It's offering a loan with a built-in mechanism for repaying that loan, but it does offer a net benefit over losing the house AND the MID.

. . . not take away from that effort. If these tax breaks are necessary for average homeowners, they are just as integral to these struggling folks.

they are an INCENTIVE to home ownership, for those who pay on their mortgage contracts as agreed. If you're being foreclosed on, you're going to lose the MID anyway - why not lose that and keep the house, rather than lose everything?

They are integral to most homeowners' ability to maintain ownership. Maybe not for you.

It's unbelievable how some folks regard the expenses of us out here.

Sorry - misunderstood intent of post.

While you would probably reap enough revenue to fund the current bailout, the resulting crash in home prices would require another bailout.

yea, I don't think this would work out so well.

** On edit. I see that you are only proposing this for homeowners who receive a direct bailout.

I think in that scenario it might help some people, but it would still place downward pressure on home prices, which is something that we should avoid right now.

they need to fall.

problems a 60 year loan to cut their payments in half. That would give them - and their neighborhoods - a chance for values to bounce back rather than be diminished. It made sense to me.

I would be one of the first people to riot in the streets if Congress tried to pull that kind of crap.

I didn't cause the crisis, so I shouldn't have to pay for fixing it.

Sorry if my OP was unclear, but forfeiting the MID applies *only* to those receiving bailout assistance at taxpayers' expense. If you don't need taxpayer money to stay in your house, then you keep on paying your mortgage like you always have, and keep your MID. But if you take bailout moneys from taxpayers, why should you enjoy a tax break for having the nation subsidize your home?

It's all just cheese and rats.

it's the cheesiest.

Out of curiosity, though, what are your thoughts on using MID forfeiture to fund a bailout loan program? I've followed your posts on this topic, and I'd be very interested to find out whether you think it would make any headway in addressing the problem, without alienating homeowners who pay in full, on time.

It seems to me the MID is more of a benefit (in both actual dollars and percentage) to higher income people than lower, because of the stepped structure of income tax rates and the tendency of wealthier people to live in more expensive homes.

My view on the whole thing is that the housing market has been like a giant Ponzi scheme, with the last people to buy a particular property getting stuck. It's very sad - homeownership is one of the main things that people aspire to, and I think a lot of them bought in a state of panic as they saw prices going ever higher, getting farther out of their reach.

I see it differently every time I think about it. The people who were cajoled into paying too much for their homes deserve to be made whole somehow, but how do you do that without screwing over someone else who acted in good faith or was not involved in the transaction? With lenders able to quickly sell their new loans to Fannie, Freddie, etc. there was no feedback loop to keep them from making irresponsible loans.

I actually kind of like the idea of very long-term mortgages, say 40-50 years, so that people who are having the most trouble see the greatest tax benefit, and let that be the mechanism for bailing them out. Eventually the market in general will rise to what they actually paid.

Ask me again tomorrow and I may say something completely different. Economics is very confusing to me.

?
Doesn't that just put everything back to square one?

a gift that you have to pay back?

This would keep people in their homes, and allow for paying back the taxpayers, on whose backs the people taking the loan are allowed to stay in their homes. It's win/win, unless you think only a true giveaway is fair. And that only looks "fair" to the recipients, not to those of us who'd have to pay for it.

No politician would even speak those words.

You do realize I'm talking about MID forfeiture *only* for those who take the bailout loans, right?

And so is talking to you about it.

If you have to have it explained to you, THAT is your problem. You don't understand the obvious.

I think you are unable to formulate your objection, and have gone into a hissy-fit over that inadequacy.

You just like to have stupid ideas and to argue with smarter people about them.

As I said, if you have to have it explained to you why it is politically infeasible to end the mortgage interest deduction, no amount of explaining it will save you.

I could fix your ignorance, but stupidity is your main problem.

nobody is talking about ending the MID, only suspending it for those who take taxpayers' bailout money, and only until the bailout loan is paid back.

So which do you have a problem with - requiring that the beneficiaries of bailout loans pay them back, or the mechanism I propose for the payback? If the latter, why should someone who is getting a big fat gift of a loan from Uncle Sam then be permitted to use the property gained through that loan to cheap out on their taxes?

You're heavy on the insults, and dreadfully light on meaningful responses.

It is a major incentive to own, versus renting.

Take that away and the value of owning declines by at least the amount of new tax owed.

The mortgage interest deduction is like a dividend on a stock or yield on a bond... it's a cash benefit paid yearly that is part of the price.

you don't still get paid dividends on it. Why is losing the MID *and* the house considered preferable to just losing the MID until the loan is repaid?

This is a *BAILOUT*, not a handout. This plan would toss the flotation device to the drowning victim, but they'd still have to grab it and hold on until pulled to safety. Why is that so wrong?

It's the exact opposite of what's desired.

Seriously... at this point in time it would spark a for-real depression. Every marginal mortgage payer would go under. For every forclosure there are two more folks hanging on by their fingernails for whom the MID makes the difference.

Whatever your mortgage payment is, it would be 20% higher in effect... at a time when house prices are declining most places.

I do taxes for a lot of people every year and have never had anyone better off with the mortgage interest deduction than with the standard deduction. Of course, we're all poor people with houses that cost less than 100K. We don't have enough medical to deduct because we can't afford to go to the doctor.

Interest is a "cost of doing business" for an individual too, and should be deductible. (So should credit card and other interest, as it used to be too.)

Instead, interest rates should be lowered with a usury law which we used to have btw (3-5% would be good during this emergency), with requirements to prevent banks from blackballing mortgage-holders who can pay. All most need is a refi at a lower rate. Then, the taxpayer isn't funding anything. (Those who are underwater should split the loss with the lender, again in a new refi. Those homeowners who don't want to do that would be able to sell in the near future anyway b/c of the market stabilizing from this.)

Also, new buyers would benefit that way, and those who have already been hurt by foreclosures.

So would credit card holders, who would be able to get out of debt, and the same for student loans, car loans, and other consumer debts.

We need a foreclosure moratorium for a while too.