Now that the dust has settled from the election, what did it all mean for the mortgage consumer? Historically Republicans are reputed to be more “pro-business”. Republicans may try to rein in regulators implementing a sweeping overhaul of financial rules and press for a smaller federal role in the mortgage market. This will be interesting, given the assumed role that the Consumer Financial Protection Bureau (CFPB) is expected to take, which may actually help mortgage companies and banks. Because Democrats still control the White House and the Senate, Republicans will be unlikely to make good on their calls for a fundamental reshaping or outright repeal of the Dodd-Frank law or unwinding the government’s role in housing finance. House Minority Leader John Boehner, the Ohio Republican in line to be the next House speaker, told reporters today the financial-regulation law will “require a significant amount of oversight so not only will the Congress understand but the American people understand just what this bill will do to our financial-services industry.”
Any time there is a change in power, and we’re running a deficit, talk comes up about changing the deductibility of mortgage interest. The United States certainly pushes folks toward borrowing. If you don’t believe it, look at the mortgage deduction that homeowners have. (Interest on credit cards stopped being deductible in 1986.) Companies can write off almost all the interest that they pay on corporate debt (but not dividends, so debt is cheaper than equity). In our business, of course, this helps promote home ownership, since people have to come with less of a down payment. An interesting question to ask a borrower is whether or not they’d buy a home if the tax deduction went away. In countries that don’t offer the tax break, like England, home ownership is about the same as the US, but house prices are much lower. And the argument can always be made that economies are better off when people are making decisions based on economic principals rather than tax considerations, and in fact the current crisis is due in part to increased borrower debt magnifying risk. Many economists feel that any system meant to encourage people to take on more debt is not a great thing.