12 November 2010

Text about modifying the mortgage interest deduction, from the proposal itself

It's on page 26 of the 50-page PDF from the National Commission on Fiscal Responsibility and Reform:
Option 2: Wyden-Gregg Style Reform

[ . . . ]

  • Limit mortgage deduction to exclude 2nd residences, home equity loans, and mortgages over $500,000
  • I'm kinda OK with this idea, except that I don't like including home equity loans. For better or worse, in my anecdotal experience home equity lines of credit are how a few friends and family bridge-financed some expenses that were emergencies, or at least turned out to be higher than they'd planned. The circumstances involved expenses like college tuition that they'd saved money for since the kid was a toddler, but which rose out of proportion to the inflation rate during the kid's last couple of years in high school; or home repairs that weren't adequately covered by insurance; or a cross-country move when they were house-rich but cash-poor. They found that they could get more cash with a HELOC than with a personal line of credit from a bank. Not that these strategies were necessarily the wisest way to go, but when you need money you need money, and the rates were better and the limit higher than their credit cards.

    Now, I do know one or two homeowners who have used their house like an ATM, and who refinanced over and over again, or took out HELOC after HELOC. For international vacations, or so they didn't have to look hard for a new job, or to finance a new-car habit. This is not only unwise, but it's also pretty scammy and makes the rest of us look bad, and when those types' banks are bailed out you get right-wing bumper stickers that say "HONK IF I'M PAYING YOUR MORTGAGE."

    In conclusion: Ha-ha, Senator Gregg's website has an animated moose in silhouette walking across the top of the page. Er, I mean, let's focus on proposals to cut Medicare and Medicaid and to raise the retirement age, and not worry so much about this small line item in the Commission's first draft.

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