Americans overwhelmingly oppose any action by Congress to tamper with the mortgage interest deduction, but it could be eliminated or scaled back as federal lawmakers and the Administration are looking at tax increases in light of deficit concerns.
The consequences would be devastating for home owners, the housing market and the nation’s economy. Any attempts to tamper with the mortgage interest deduction would raise taxes on millions of home buyers and home owners and further depress home values, leaving more home owners with mortgages larger than the value of their property (“underwater”) and fueling even more foreclosures. It only takes a 6 percent drop in home values to wipe out $1 trillion in household wealth.
This cornerstone of American housing policy has been in place since the inception of the tax code 100 years ago and supports the aspirations of families at all income levels to become home buyers. More than 33 million home owners directly benefit from the mortgage interest deduction and two-thirds of the benefit goes to middle-class home owners who make less than $200,000.
Building 100 single-family homes creates more than 300 full-time jobs and generates $8.9 million in federal, state and local tax revenues. Scaling back the mortgage interest deduction will shrink the tax base of local communities. It will cause already cash-strapped state and local governments to further cut essential services -- including jobs for local school teachers, police and fire departments.
Acting preemptively to protect the deduction, NAHB launched a nationwide Protect Homeownership campaign that attracted thousands of policymakers, business owners, community leaders and consumers to learn the facts, sign a petition and attend rallies in politically charged swing states leading up to the 2012 elections. Overall, NAHB was able to reach more than 25 million Americans.
NAHB economist Robert Dietz testified in 2013 before the House Ways and Means Committee during a hearing on tax reform and residential real estate. He called on Congress to maintain support for vital housing tax incentives, including the mortgage interest deduction. For more details, view Dietz's testimony or see NAHB's press release.
Further, NAHB lobbyists met with virtually every Senate member and/or their key staff aides in July to explain the importance of housing tax incentives in the current system. NAHB was also a major contributor to a Democratic Governors Association white paper released in September that highlighted the association's policy arguments on the need to retain the mortgage interest deduction and Low Income Housing Tax Credit.
The association’s efforts to elevate housing on the national agenda have sent a powerful message to the media and members of Congress: Americans value homeownership and lawmakers need to support pro-housing policies that will create jobs, help local communities to flourish and make it easier and more cost-effective for buyers to purchase homes and builders to construct homes. Moreover, NAHB is positioned – and prepared – to be highly engaged in the debate if threats to the home mortgage deduction and other housing tax incentives materialize.
To educate the public on the importance of preserving the mortgage interest deduction as a cornerstone of American housing policy, as well as to enlist their support to urge policymakers to make sure creditworthy consumers and small businesses can get mortgages and loans, NAHB has created a consumer-oriented website, ProtectHomeownership.com. The website contains frequently asked questions, statistics, polling data and other important information to allow consumers to stay informed.
Large numbers of foreclosures nationwide are driving down home values, destabilizing communities, costing jobs and preventing a full-fledged housing and economic recovery.
The lower home values caused by foreclosed homes are also forcing many home owners "underwater" to a situation where they owe more on their mortgage than their home's current market value. Preventing foreclosures and keeping people in their homes is essential to stabilize home prices, strengthen communities across the land and get the recovery up to full speed.
The large numbers of foreclosures in most areas have inevitably led to numerous problems in the housing market, especially regarding appraisals.
Flawed appraisals are a major problem for home buyers, owners and builders. Too often, appraisers are using distressed properties – many of which have been neglected and are in poor physical condition – as comparables in assessing the value of well-kept existing or brand new homes without accounting for major differences in condition and quality.
Many home owners seeking to refinance and take advantage of today’s record low interest rates are unable to do so because their house appraisals are coming in too low. A move-up buyer is out of luck if the appraisal on their existing home comes in below what they owe on their current mortgage. Likewise, many prospective home buyers have been left out in the cold because their dream house was appraised below the sales contract price. And many home builders have encountered appraisals where a new home was valued at less than the construction cost. Such appraisal practices are unfairly holding down home values, keeping home owners underwater and hindering the housing market recovery.
Moreover, the lower property values associated with such appraisals are shrinking the local tax base in many communities. This is putting further pressure on state and local governments that are strugglingn to keep essential services at acceptable levels.
Complicating the situation, appraisals are governed by multiple public and private entities and ultimately are enforced by individual states. Standards and requirements can vary greatly, resulting in a system that is inconsistent and confusing and does not serve consumers well.
Major reforms in appraisal practices and oversight are needed to ensure that appraisals accurately reflect true market values and don’t contribute to price volatility, impede the economic recovery or harm aspiring home owners and move-up buyers. Based on more than a year of research by a special Appraisal Working Group and extensive input from stakeholder groups, NAHB has published "A Comprehensive Blueprint for Residential Appraisal Reform," which offers specific recommendations for changes to all aspects of the appraisal system.
Additional information about foreclosures and appraisals:
3. Maintain Federal Support for Housing Finance System
A sound housing finance system that provides a stable and affordable supply of credit for home buyers and rental housing is essential to ensure a healthy housing market, spur job creation and maintain a strong and resilient economy.
In the wake of the financial crisis, the private market is clearly not working. The Federal Housing Administration, Fannie Mae and Freddie Mac currently guarantee or insure more than 90 percent of all home mortgage activity and private lending institutions have shown little inclination to step up to the plate. Even with the current high level of federal support, fewer mortgage products are available now than in the past, and these loans are being underwritten on much more stringent terms.
Policymakers are now looking at several proposals to wind down Fannie Mae and Freddie Mac and are weighing several options to encourage increased participation from private financial institutions.
Legislation approved by the House Financial Services Committee to overhaul the U.S. housing finance system (H.R. 2767, the Protecting American Taxpayers and Homeowners -- or PATH Act), would take the nation in the wrong direction. In its current form, the bill would harm many of the 6 million Americans who typically buy homes during the course of a year, making it much more difficult for them to afford the purchase.
If the reduced support for housing drives up mortgage rates by 1 percent, for example, it will price 4.5 million households out of the market for the median-priced new home. If this bill became law, the reduced support for housing would also drive down home values. Moreover, the 30-year mortgage -- the most popular and sustainable mortgage in the marketplace -- would be far less available to first-time home buyers and working American families.
These negative consequences would occur because the PATH Act seeks to remove any government role from the conventional mortgage finance market and drastically reduces FHA's role.
Draft legislation championed by Senate Banking Committee Chairman Tim Johnson (D-S.D.) and Ranking Member Mike Crapo is far different from the House bill. Building on the framework offered by Sens. Mark Warner (D-Va.) and Bob Corker (R-Tenn.), the legislation contains several elements recommended by NAHB to restructure the nation's housing finance system, such as retaining a federal backstop that would only be triggered under extreme circumstances to preserve financial stability, promote investor confidence and limit taxpayer exposure.
The Johnson-Crapo bill acts like a disaster insurance plan. Knowing that the government has a limited role in supporting a mortgage market predominantly filled by the private sector will ensure liquidity and stability for homeownership and rental housing.
NAHB will continue to work with lawmakers in both chambers to stake out a bipartisan consensus that will result in a robust housing finance system.
Six federal agencies last summer revised a proposed national qualified residential mortgage standard by striking provisions that would require a minimum 20 percent downpayment and other onerous underwriting criteria that NAHB opposed.
This issue is extremely critical to ensure the long-term viability of the home building industry. Mandating a minimum 20 percent downpayment would keep homeownership out of reach for most first-time home buyers and middle-class households.
NAHB has been working nonstop to ensure that the new rules now under consideration, which will define the mortgage markets for years to come, provide long-term liquidity and stability for homeownership and rental housing.
Simply put, if qualified borrowers are denied access to financing, they can’t buy homes, home builders will lose sales and the entire housing market will suffer.
QM and QRM Rules Would be Aligned
The proposed federal regulations under the Dodd-Frank Act would align the definitions of a qualified residential mortgage (QRM) and the qualified mortgage (QM), the standard lenders must follow to demonstrate they have determined a borrower’s ability to repay a mortgage loan. The QM rule went into effect in January 2014.
The QRM definition pertains to the sale of mortgages in mortgage-backed securities, and securitization of QRMs would be exempt from the 5 percent credit risk retention requirement under Dodd-Frank. The QM and QRM definitions are widely expected to set the parameters for future mortgage lending. By equating QRM to QM, the regulators will provide consistent underwriting standards for the primary and secondary mortgage markets.
However, federal regulators are seeking comment on an alternative approach to the QRM, called "QM-plus," that would require lenders to retain a stake in the credit risk when mortgages to be securitized have less than a 30 percent downpayment. NAHB will continue to work with the regulators and its coalition partners to ensure that the QRM definition does not include a downpayment requirement in the final rule.
NAHB issued comments on the proposal before the Oct. 30 deadline and federal agencies are expected to issue a final vote on the rule later this year. The new regulations go into effect one year from the date that they are finalized.
Information related to the proposed QRM and QM requirements:
5. Fight Onerous Regulations that Hurt Home Builders, Remodelers and Consumers
NAHB is in the forefront in preventing expensive, pointless regulations from impeding home building and remodeling and adding unnecessary costs to consumers. From overly broad stormwater permit requirements that would literally regulate puddles under the Clean Water Act, to far-reaching Endangered Species Act requirements, and lead paint rules that cost remodelers jobs and money, NAHB is leading the fight to rein-in unnecessary and burdensome regulations that harm the industry and consumers. Just reinstating the lead paint rule opt-out provision for homes not occupied by children or pregnant women would save $336 million annually in compliance costs. NAHB-supported legislation (S. 484) introduced in the Senate last March by Sen. James Inhofe (R-Okla.) addresses many of the concerns from NAHB Remodelers and affiliated trade groups about the EPA’s Lead: Renovation, Repair, and Painting Rule. A companion bill (H.R. 2093) was introduced in the House last spring by Rep. Tim Murphy (R-Pa.), along with 21 original co-sponsors. NAHB is urging House and Senate lawmakers to cosponsor these bills.
Meanwhile, NAHB is warning that the Environmental Protection Agency's proposal released in March to expand the reach of the Clean Water Act could increase the cost of new homes without a corresponding benefit to America's lakes, rivers and other water bodies. Expanding federal authority over water and land use would greatly increase the number of construction sites required to obtain a federal clean water act permit. This would delay or stop construction projects nationwide and slow economic growth. NAHB is seeking legislative and regulatory remedies that will protect the environment without adding unnecessary regulatory burdens that will make the land development process more expensive and time consuming. View more details here.
Kansas home builder Carl Harris testified twice before Congress last year on behalf of the association to talk about the impact of regulations on small home builders. On March 14, he testified before the House Small Business Subcommittee on Investigations, Oversight and Investigations and on June 28 appeared before the House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law. See NAHB's press release for more details.
For additional information about lead paint rule enforcement and compliance, visit nahb.org/leadpaint. Learn more about NAHB resources on stormwater permits and programs here. View the latest Endangered Species Act developments at nahb.org/esa.
6. Ensure an Adequate Supply of Reasonably Priced Credit for New Home Production
Commercial banks and savings and loan institutions have traditionally provided the lion's share of housing production credit for the residential construction industry, which is known as acquisition, development and construction (AD&C) funding. But even as housing markets heat up across the country, financial and regulatory constraints are preventing these lenders from providing the amount of credit that would be typical given current economic conditions.
This lack of credit is harming the housing recovery and preventing construction of new homes in markets that need and want them. A full-fledged housing and economic recovery will not take hold until we resolve this ongoing credit crunch. Restoring the flow of credit to home builders will not only help to put America back to work, it will provide badly needed tax revenues that local governments need to fund schools, police and firefighters; and strengthen the economic health of countless communities across the land.
NAHB worked with Sens. Robert Menendez (D-N.J.) and Johnny Isakson (R-Ga.) to introduce bipartisan legislation in 2013 to address the credit issue for builders. S. 1002, the Home Building Lending Improvement Act of 2013, is similar to legislation (H.R. 1255) introduced in the House earlier in the year by Reps. Gary Miller (R-Calif.) and Carolyn McCarthy (D-N.Y.) and represents a substantial step forward in the effort to restore the flow of credit to the housing industry. See NAHB's press release for more details.
7. Recognize Housing’s Important Role to the Economy
As policymakers begin debate on housing finance and budget issues that will impact job creation and future growth, they must understand the important role that housing plays in the U.S. economy. Considering the enormity of the total number of jobs attached to housing, a sector that normally accounts for more than 17 percent of the nation’s Gross Domestic Product, now is hardly the time to step back from the nation’s long-standing commitment to homeownership.
Building 100 average single-family homes generates more than 300 jobs and nearly $9 million in taxes and revenue for state, local and federal governments that supports local schools and communities across the land. Perhaps more than any other consumer product, housing is “Made in America.” New homes and apartments don’t arrive in this country on container ships from Europe or Asia, and most of the products used in home construction and remodeling are manufactured here in the United States.
More than 1.3 million residential construction jobs have been lost since April 2006. The pace of recovery is debatable, but based purely on population growth and demographics, the U.S. will need to build 17 million additional homes over the next decade.
The gap between current production and potential housing production is about 700,000 homes. That represents more than 2 million untapped American jobs. This gap is a result of multiple factors, including deferred household formations, a lack of construction financing and flawed appraisal practices under which new homes get compared to distressed and foreclosed properties, thereby distorting true market values.
A strong economy is dependent upon a healthy housing market. The path forward is perfectly clear: Congress needs to take actions to restore the health of the housing industry to put America back to work.
This is a sentiment shared by American voters as well. An NAHB survey of 2012 voters conducted by Public Opinion Strategies and Lake Research Partners found that despite the ups and downs of the housing market, home owners and non-owners alike consider owning a home essential to the American Dream and support politicians who embrace pro-housing policies and the mortgage interest deduction.
An overwhelming 74 percent of the respondents said that owning a home is worth the risk of the fluctuations in the market and 68 percent of those who do not own a home say it is a goal of theirs to eventually buy one. Equally telling, more than seven out of 10 of all Democrats, Republicans and Independents agree that tax incentives to promote homeownership are reasonable and two-thirds of the survey respondents believe the federal government should play a role to ensure that 30-year home loans remain readily available and affordable.
The NAHB poll is consistent with a New York Times/CBS News survey that reveals more than nine out of 10 Americans oppose eliminating the mortgage interest deduction; a recent Harris Interactive survey that shows more than four out of five renters desire to be home owners; and a poll released in 2012 by the Woodrow Wilson International Center for Scholars, which found that voters also placed a very high importance on homeownership.
For more information on this topic, click on the following links:
As Congress looks at tax expenditures and all programs come under review, it is important to protect the Low Income Housing Tax Credit (LIHTC), the most successful affordable rental housing production program in U.S. history. Eliminating the LIHTC would bring production and rehabilitation of affordable rental housing to a standstill.
Since its inception, the program has made possible the production of more than two million affordable apartments. It creates approximately 95,000 new full-time jobs, adds $7.1 billion in income to the economy and generates approximately $2.8 billion in federal, state and local taxes each year. In recent years, the LIHTC has produced about 75,000 new apartment homes annually.
The demand for affordable housing is acute and far exceeds the ability of LIHTC projects to keep pace. The program is essential to address the shortage of affordable housing options in our cities and towns.
NAHB economist Robert Dietz testified in 2013 before the House Ways and Means Committee during a hearing on tax reform and residential real estate. He called on Congress to maintain support for vital housing tax incentives, including the Low Income Housing Tax Credit. For more details, view Dietz's testimony or see NAHB's press release.
The home building industry, with the contribution of a substantial immigrant workforce, plays a critical role in sustaining the national economy and meeting the nation's housing needs. It is estimated that more than 20 percent of the building industry's workforce is foreign-born, making the immigrant population key to meeting housing demand and sustaining growth in the industry.
As Congress turns to a broader conversation on immigration reform, NAHB is urging lawmakers to take steps to make a system that is workable. Specifically, NAHB strongly urges Congress to focus on the direct employer-employee relationship so that U.S. employers remain accountable only for the identity and work authorization status of their direct employees, and not for the employees of other businesses.
NAHB also urges Congress to create an efficient, temporary guest worker program that allows employers to recruit legal immigrant workers when there is a shortage of domestic workers and allows these immigrants to be put on the path to temporary or permanent legal residency or citizenship. Finally, NAHB supports congressional efforts to address the concerns created by the growing undocumented immigrant population and create a system whereby they can achieve legal status.
The Border Security, Economic Opportunity, and Immigration Modernization Act (S. 744) passed by the Senate last summer addresses many elements advocated by the home building community, including enhancements to border security and a workable employment verification system that honors the direct employer-employee relationship. However, NAHB remains concerned that the new W Visa program in S. 744 unfairly discriminates against the housing industry during a critical juncture in its recovery, and the association is pushing for much-needed changes to the final legislation.
As the legislative process moves forward, NAHB stands ready to work with Congress to craft a final bill that best meets the needs of the housing industry.
10. Use All Legal Means Necessary to Protect Property Rights
NAHB’s proactive litigation efforts have forced governmental bodies and agencies at the state and federal levels to scale back or entirely eliminate efforts to limit or stop development on countless parcels nationwide. Fighting on behalf of property owners, NAHB led a coalition of 16 prominent real estate and business organizations in filing an amicus (friend of the court) brief with the U.S. Supreme Court that explained why it is neither necessary nor fair for governments to extort money from property owners who wish to use their land. In a major victory for NAHB's members and property rights advocates, the Supreme Court agreed when it issued a landmark decision on June 25, 2013 in the case of Koontz v. St. Johns River Water Management District. The decision overturns a Florida Supreme Court ruling that would have given governments expanded power to force unreasonable exactions upon developers in exchange for a permit approval, and it means that federal, state, and local regulators will need to exercise more caution to ensure that permitting demands -- including monetary demands -- are proportionate to the project at hand. View more details on the case here.
11. FocusCongressional Action on Flood Insurance, Building Energy Codes and Crystalline Silica
NAHB commends the bipartisan efforts of lawmakers in both the House and Senate for working to pass flood insurance legislation that will provide much-needed certainty to home owners and financial stability for the National Flood Insurance Program (NFIP). H.R. 3370, the Homeowner Flood Insurance Affordability Act, was signed into law by President Obama on March 21.
H.R. 3370 will help address some of the costly and unintended consequences of the Biggert-Waters Flood Insurance Reform Act, including huge premium spikes and impacts on the sale, construction and remodeling of homes across the nation.
The flood insurance law provides a more affordable rate structure for policyholders; repeals the requirement that flood insurance premiums increase immediately to full actuarial rates for homes that are sold; and restores “grandfathering” for properties that were paying premiums applicable to their initial flood risk rating, allowing owners to pay premiums based on the original risk zone rather than updated flood risk zones.
The law also requires the Federal Emergency Management Agency’s remapping process to take into account local flood control structures and provides reimbursement for successful consumer map appeals.
Further, it restores the “substantial improvement threshold” that triggers a higher flood insurance rate to the historic 50 percent level of a structure’s fair market value, which is important for many remodelers across the nation.
Building Energy Codes
NAHB is calling on the Congress to enact legislation that increases transparency in the development of energy codes and ensures that advancements in energy efficiency are also cost-effective.
NAHB believes that H.R. 1616, the Energy Savings and Industrial Competitiveness Act (H.R. 1616) sponsored by Reps. David McKinley (R-W.Va.) and Peter Welch (D-Vt.) is an appropriate vehicle for this type of reform, but more work needs to be done.
NAHB recently requested that the Occupational Safety and Health Administration (OSHA) withdraw a proposed rule that would drastically lower the permissible exposure limit (PEL) of crystalline silica by 80 percent for the construction industry. The rule also requires impractical medical surveillance of construction industry workers, extensive and costly recordkeeping processes, and restrictions on certain construction site work practices, which contradict existing safety procedures.
OSHA has determined that a rule is needed to substantially reduce the risk of serious disease from exposure to airborne concentrations of silica dust. This, however, runs contrary to data from the national Centers for Disease Control and Prevention that shows a sharp decline in the incidences of silicosis in recent decades. To date, OSHA has not explained how drastically lowering the PEL will effectively reduce the current number of silica-related illnesses and deaths.
NAHB believes the rule is economically and technologically unfeasible for the industry to comply with. OSHA has estimated that the rule will cost the industry approximately $511 million to implement, however, analyses show that this number is grossly underestimated. Economic analysts estimate the cost to be closer to $2.2 billion per year, and likely to increase given the present state of the economy.
Given the many problems associated with the proposed rule, NAHB is urging members of Congress to call or write OSHA and request that the agency withdraws the proposed silica rule until it can put forth a technologically justifiable and economically feasible rule that best aligns with current industry practices.