... The ability to deduct mortgage interest from your federal taxes has long been considered a cornerstone of middle class homeownership. The common wisdom has been that without the mortgage interest deduction homeownership rates and housing prices would tumble, while middle class households would be relegated to renting (a fate worse than foreclosure apparently). This may have been accurate two decades ago, but over the past several years the middle class has steadily seen its share of the mortgage interest deduction erode away. ...Click to continue

The deduction of mortgage interest from federal income taxes subsidizes homeownership, making it more affordable to become a homeowner. It is a highly popular tax break, yet one that is not without criticism. For example, the mortgage interest deduction (MID) primarily benefits those who would choose to own homes anyway while encouraging them to simply buy bigger and more expensive homes.Click to continue

One of the eight GSE reform bills to be debated tomorrow afternoon is aimed at making Fannie and Freddie charge a more appropriate fee for the guarantee they provide (a "g-fee"). The bill, introduced by Rep. Neugebauer (R-TX), instructs FHFA to determine what the market would charge as a g-fee if they were setting the price. Put another way, if Fannie and Freddie were private companies with no government support, what fee would they charge to guarantee payment on mortgage-backed securities to investors? Certainly higher than their current fee, which is subsidized.Click to continue

Myth 1: In order for the economy to recover, housing prices have to reach pre-recession levels. They cannot decline further. Therefore the government must continue to prop up housing prices or provide incentives to encourage people to buy homes.
Fact 1: Pre-recession housing prices were a historic anomaly based on easy credit caused in part by misguided government policy. Lower housing prices are not bad for everyone. They are also the only way to get rid of our bloated housing inventory.Click to continue

...If the theory that higher mortgage rates would hurt homeownership (by increasing the price of mortgages and decreasing demand for housing) were to hold true, then mortgage rates rise homeownership should fall. And vice versa. So what does the historical data say? (See full article for chart)...Click to continue

An important question in reform debate for Fannie Mae and Freddie Mac is how to balance the need for change and the need to avoid destabilizing shocks to the marketplace. Certain interest parties are terrified that a reform would derail the fragile movement of the housing market towards recovery. However, this recovery is being built on the very government subsidies that need to be reformed out of the system. So there will have to be some level of destabilization as we shift towards a more private market (assuming that is where reform takes us).Click to continue

One of the striking features of the housing bubble was the excessive origination of toxic mortgages. Government incentive programs—and the global savings glut's search for yield—directed too much credit towards housing and only temporarily juiced prices. It is all but certain that whatever reforms come for the housing market, there will be less credit available for mortgages than during the past decade.

But that is okay.Click to continue