PMI tax deduction contributes to problem
Posted by BrianThe recent downswing in the housing sector was a predictable response to a market that had lost sight of fundamentals. Lenders loosened too many longstanding requirements for borrowers. The debtors were more than happy to voluntarily extend themselves to the breaking point to get the most house that they could “afford.” Risky mortgages were lumped together with other risky mortgages and sold, inconceivably, as a low risk investment. After the bottom fell out Congress piously hauled in leaders of industry to dress them down in one of their frequent public spectacles.
It is an unspoken fact that governmental social engineering aimed at expanding home ownership has played a key role in inflating home prices and exposing unprepared borrowers to the unforgiving world of mortgage debt. Little did I know until just last week that this year Congress went even further down the path of reckless intervention. In 2007 Private Mortgage Insurance (PMI) became tax deductible. For the uninitiated, PMI is insurance paid by borrowers who make a down payment of less than 20%. There are mortgage options that circumvent PMI, but they carry an effective interest rate higher than a single mortgage.
All Congress has done by making PMI deductible is to encourage further indebtedness. Their action will ultimately result in more foreclosures. When the time comes they will wring their hands and blame the greedy lending industry while turning a blind eye to their own culpability.
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October 18th, 2007 at 9:47 am
I find your insight into PMI quite interesting. As a borrower, who could not afford the 20% downpayment, I must suffer with a PMI until I reach that threshhold. I found it rather difficult to produce a 20% downpayment with student loans and such, but the lending institution was willing to work with me. I can comfortably make my payments, and barring financial ruin of the local economy will continue to do so. And to think, I thought I was a libertarian.