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Rates hold steady as lawmakers mull major mortgage change

November 14, 2017

Over the past few weeks, lawmakers in both the U.S. Senate and House of Representatives have worked on overhauling the nation's tax infrastructure. Included in the discussion about what current tax breaks could be cut was something that has long been quite important to homeowners, and has largely been viewed as untouchable by lawmakers: the mortgage interest deduction.

With both the House and Senate working independently to come up with a tax plan that has a chance of passing, it should be noted that the former proposes largely removing the mortgage interest deduction, while the latter left it intact for more expensive homes, according to the New York Post. Specifically, the deduction from the House would only be on homes valued up to $500,000, but the Senate's limit would be double that amount.

"The Senate's bill would also eliminate another key deduction."

However, the Senate's bill would also eliminate another key deduction for homeowners, the report said. Specifically, it would no longer allow Americans to deduct on their federal taxes any state or local levies they pay, including the property tax. Meanwhile, the House's version of the bill would cap property tax deductions at $10,000.

A closer look
At first, there was concern within the real estate industry that key deductions for homeowners would be eliminated entirely, but lobbying efforts seem to have had a positive effect on lawmakers' plans, according to American Banker. Both the House and Senate versions of the bill now include the mortgage interest deduction once again, but it seems likely lobbyists will more heavily back the Senate version because it allows more people to claim the tax break.

"If the cap on the [mortgage interest deduction] is raised (or other adjustments are made), we think lawmakers will turn to other areas for pay-fors," Brian Gardner, an analyst at KBW, wrote in a note to clients, according to the site.

These "pay-fors" are needed because tax reform needs bi-partisan support to pass, unless every dollar cut in one area is replaced by new tax revenue raised in another, known as "reconciliation."

"Mortgage rates have largely been in a holding pattern."

The effect on rates
With tax reform on many investors' minds but no definitive action having been taken to this point, mortgage rates have largely been in a holding pattern for about a month. In the week ending Nov. 9, the most recent period for which data is available, 30-year fixed-rate mortgages averaged 3.9 percent, according to Freddie Mac. That's down from the previous 3.94 percent, but still much higher than the year-ago level of 3.57 percent.

Likewise, 15-year FRMs slipped to an average of 3.24 percent from the 3.27 percent seen a week earlier, but was still up from 2.88 percent in the same period last year.

Sean Becketti, chief economist at Freddie Mac, noted that yields on 10-year Treasury bonds, to which mortgage rates are closely tied, slipped 7 basis points over the previous week.

This is certainly an issue for homeowners and industry insiders alike to monitor closely in the weeks ahead, but it remains unclear just what outcome the tax overhaul will have, if any.




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