A failure on the part of the nation’s lawmakers to reach a deal on the fiscal cliff does not spell automatic doom for the mortgage industry or for families wanting to take on new mortgages, according to Lawrence Yun, chief economist for the National Association of Realtors.
However, it creates more uncertainty — something the mortgage industry and homeowners have grown weary of.
President Obama and Congress were working Friday on a last-ditch effort to save Americans from tax hikes set to take effect in January, but issues related to housing are most likely postponed at this point.
Two issues tied to fiscal cliff negotiations and deficit reduction talks have a direct impact on the mortgage industry.
First, the Mortgage Forgiveness Debt Relief Act expires at year-end without a move by Congress to extend it.
The act was originally passed in 2007 so struggling homeowners could go through short sales, loan modifications and other resolutions without getting zapped with taxes on forgiven debt.
Second, policymakers have been throwing around the idea of tossing out the mortgage interest tax deduction to help reduce the nation’s deficit while protecting most Americans from tax hikes. Such a move would take away a popular tax benefit for homeowners.
Lawrence Yun with NAR told HousingWire “it’s very quiet in Washington, D.C., in terms of the key people trying to make compromises.”
And while NAR and other housing industry groups lack certainty, Yun says a proposal to eliminate the deduction on mortgage interest is probably far removed from the negotiating table at this time.
He expects Congress and the president to try to come up with a temporary solution in the next few days to spare America from going over the fiscal cliff.
And if they compromise on an initial solution, Yun anticipates a more extensive agreement over how to reduce the nation’s deficit next summer. That is when the mortgage interest tax deduction could end up back on the bargaining table.
Even then, Yun sees it as a difficult item for lawmakers to eliminate.
“I believe the mortgage interest tax deduction is one of those issues where it impacts so many people. It is not a special interest. I don’t see the deduction being changed in any measurable way in the grand bargain.”
As for the Mortgage Forgiveness Debt Relief Act, the expiration is at hand, bringing a bigger sense of urgency.
But Yun says the extension of it has bipartisan support and he anticipates a final compromise although that may come sometime in mid-January with provisions to make it retroactive.
He anticipates a two-year extension will be applied when that measure is finally pushed through. “I am less concerned about that,” he said. “There is no hostility to the mortgage forgiveness debt relief bill.”
But Yun admits, homeowners worried about losing mortgage interest tax deductions may still view a lack of closure on that issue as too much uncertainty, causing them to hold off on buying a home.
“For some homebuyers they may want to wait it out until they see what is in it (the grand bargain) and what is not.”
