Brent Wayne

By Brent Wayne

As one of the most effective tax shields of any deduction, the mortgage insurance tax write-off is essential to the protection of the middle class, especially in a volatile economy of uncertainty. Despite their considerable differences on other issues, the legislative and executive branches seemed to come together to protect the mortgage insurance write off for the sake of the overall economy (and most likely their jobs).

Below are just a few reasons why the mortgage insurance write off continues to be one of the most important political and economic initiatives in contention today.

1. Most borrowers do not have the ability to pay cash for housing. Not only has the volatile economy consolidated wealth away from the middle class, but it has also stopped much of the housing market in its tracks. People who would normally buy houses are now renting and staying at home. Even those who have the money for a down payment are holding back because of the few extra expenditures that go along with purchasing a home. Those few who still have enough money for a down payment may not have the 20 percent that is necessary to keep from paying mortgage insurance. Without the tax write off for this insurance, most borrowers would end up in default or underwater because of the accruing interest and fees on the mortgage and on the insurance.
2. The ability of the borrower to pay mortgage insurance helps to solidify the banking structure. The mortgage write-off is especially important because those borrowers who pay it are actually stabilizing the financial sector. In the banking and housing debacle of 2008, many banks were completely upended because of their propensity to loan too much money to unqualified borrowers. The backlash included a political crackdown on banks that would continue this practice. As a result, banks are more stringent when it comes to loaning money, especially for those borrowers who do not have 20 percent down and must purchase mortgage insurance. The payment of these mortgage insurance fees by borrowers is essentially what is keeping the housing market stable as the economy continues to repair itself. Were individuals to stop paying mortgage insurance because the taxes on real estate were too high, many experts agree that the banking system would free fall into oblivion yet again. The backlash could be much worse than the Great Depression because the dollar has already been greatly devalued throughout the bailouts of George W. Bush and Obama.

The Debate Continues

However, the debate over the mortgage insurance tax write-off is far from over. The deduction has only been extended by Congress until the last day of the year 2013. This virtually assures a reinvigorated debate during the midterm elections.

Although the mortgage deduction began fairly recently in 1997, it has helped millions of potential homeowners purchase real estate that they otherwise would not have had a chance to buy. Should Congress choose to use the mortgage deduction as fodder for deficit reduction, they risk throwing the economy into free fall and stopping the housing market short in the middle of its shaky recovery. It is up to those who would find their way into the housing market to put pressure on legislators to keep the mortgage insurance deduction on the books so that the middle class can continue to invest in real estate.

Brent Wayne is a 23-year-old professional writer with a focus on housing, finance, and economy. He is currently writing for MortgageLoan.com. You can reach him at brent.wayne@yahoo.com.