 May 15, 2012 Mortgage Deductions
May 15, 2012
Mortgage deduction on second homes could become thing of the past
The mortgage-interest deduction for vacation homes and other non-primary residences is targeted for elimination.
By Dan Levy
Bloomberg News
The mortgage-interest deduction for vacation homes and other non-primary residences should be eliminated as part of housing-finance overhaul, said Lewis Ranieri, a pioneer of loan securitization.
"We don't need a deduction on second homes," the chairman and founding partner of New York-based Ranieri Partners Management said Tuesday during a panel discussion at the Milken Institute Global Conference in Beverly Hills, Calif.
The allowance is "nice but not necessary," and limits on primary-residence deductions should be considered, too, he said.
The provision that allows taxpayers to deduct mortgage interest on second homes will be altered eventually, U.S. Sen. Bob Corker, R-Tenn., said during the discussion.
While President Obama's administration and Congress have publicly found "no common ground" on most issues regarding housing-finance changes, there is agreement on eliminating the tax break for nonprimary residences, Corker said.
"There's no question that it's going to change," said Corker, a member of the Senate Banking Committee who is running for re-election in November.
Ranieri, who packaged home loans into securities at Salomon Brothers, making it Wall Street's most profitable firm in the 1980s, also said mortgage-financing giants Fannie Mae and Freddie Mac must be restructured to give private investors the confidence to re-enter the mortgage market.
The agencies, seized by the federal government in 2008 after the housing collapse, own or guarantee 60 percent of the nation's home loans.
Mortgage securitization, blamed for helping inflate the U.S. housing bubble, initially allowed more Americans to buy homes and use them "as shelter, not ATMs," Ranieri said.
The mortgage-bond market worked "reasonably well" for more than 30 years before being undone by lax underwriting standards during the run-up in residential-property values, he said.
U.S. home prices probably bottomed in the third quarter of 2011 except in some "bubble markets," according to Ranieri.
He also said the Obama administration's retooled Home Affordable Refinance Program, known as HARP II, is "building up a head of steam" after the plan initially failed to help millions of property owners in need of assistance.
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