Obama Removing Mortgage Interest Deduction – Dumbest Idea Of The Week


The Obama budget announced this week – in the middle of biggest housing crisis since the Great Depression – seeks to raise tax revenue by removing the mortgage interest tax deduction for those that are in the 33% and 35% income tax brackets.

What? You’ve got to be kidding, right?

obama removing mortgage interest deductionI can’t count the ways this is bad for housing. The one big reason renters all across this country make the decision to become home owners is the extra incentive the tax code gives them. Sure they have the, “I can paint the walls any time I want without getting permission from anyone” reason, but that is no where near as motivating as $1,000’s they get via the deduction every year.

Obama limiting this to the “wealthy” may think he’s not hurting those home owners in the lower tax brackets, but he’d be wrong. The housing market is a connected market. In other words, what hurts home values at the top eventually spreads lower depressing all home values.

Aren’t home values depressed enough?

Another big problem with this proposal is that those “wealthy” folks buy homes in the areas of the country still getting ravaged by massive foreclosures. Places like Arizona, California, New York, and Florida need this like they need a hole in the head.

These States are still reeling from a glut of homes due to the foreclosure crisis. Many of which are of the “luxury home” variety. I guess Obama forgot that only the rich can afford a luxury home.

Don’t get me wrong, I’m not crying for the rich. I’m crying for the housing recovery. Choking it off before we even get started is just plain dumb.

So Obama and his removal of the mortgage interest deduction wins my “Dumbest Idea of the Week” award.

Can’t wait for next week!

Good Luck!

Photo Credit: SEIU International

About Author

Rob K. Blake, a 15 year veteran of the mortgage industry, is a renowned public speaker, author, and former radio talk show host. His blog, TheMortgageInsider.net, is dedicated to educating mortgage consumers, mortgage providers, and investors about both mortgage and housing markets.


  1. Stanley Sokolow on

    The Obama proposal is not “removing the mortgage interest tax deduction for those that are in the 33% and 35% income tax brackets” but rather it is to limit the income tax deduction to the amount it would be if the taxpayer were in the 28% bracket. In other words, high-income taxpayers would no longer get to deduct a higher dollar amount of mortgage interest just because they are in a higher income bracket.

  2. That’s what I understand as well, like what Stanley said, is that the upper tax bracket mortgage deduction is going to be limited, not erased. In essence, it really shouldn’t hurt the high earners that much. Besides, this actually would be a return to an old policy, until it was revised in 2001 and this new itemized deduction rule went into effect 2006.

  3. My next blog post (probably due Saturday) is going to look at the general economic direction of the Obama admin. It is a direction that will be good for some, bad for others, as is always true of economic policy. However, for one class – US (entrepreneurial investors) – it is really going to be bad. Buckle up.

  4. This is a great idea, real estate is not a route to wealth its a place to live. Real estate should be heavily regulated after its role in getting us all in to this mess. The excessive speculation, backed up by tax advantages have contributed to an extravagant binge on debt.

  5. I have to say I disgree with you Rob. I don’t think the mortgage interest deduction is an incentive to home ownership. I think that the mortgage interest deduction gives an incentive to those who will already buy a home to buy a bigger one. A majority of the time that I do a loan for someone–they rarely ask what their after tax cost is–they want to know if they can afford the monthly payment. If the answer is no, they don’t buy. Those who the deduction was designed to help–mainly the middle class and lower middle class–don’t itemize–they take the standard deduction. Besides–Obama is only proposing that the deduction be phased out after the 28% tax bracket which affects those who make over $208,850 and file jointly.

    Steve Heideman’s last blog post: Comment on What’s Ahead For Mortgage Rates after the Stimulus Plan? by Steve Heideman

  6. Wayne, I beg to differ with you; you are absolutely clueless in your statement that “real estate is not a route to wealth it’s a place to live”. If that’s the case then we should all just live in government owned apartments. Furthermore, it is not real estate investing that has brought the country to the “mess”. It is the fact that banks were forced by big government to make bad loans. Honest people pay back their real estate loans. I benefit greatly from my mortgage deduction and I pay back my loans without help from the government. WE DO NOT NEED MORE REGULATION in real estate.

  7. That’s right, Obama making another move to punish the rich, the people who invest in real estate and provide housing for those who can not buy. Typical Liberal who can’t understand that for every action there will be a reaction. Look for less investors in the market, which means less affordable housing, which means the return of government housing and slums.

  8. Boy oh boy…Barry Obama has got to be one of the stupidest people walking the planet. Either that or he genuinely hates this country as he basically states in his book..that apparently none of the brain dead that voted for him read!

  9. The mortgage interest deduction is a subsidy to the banks and nothing more. By perpetuating this garbage, you are convincing people to not pay off their mortgages which is the wrong decision for many people.

  10. agree this is truly a bad idea. what about the two working parent families with kids living in new york or new jersey where the cost of living is much higher. people that have bought houses which may already be underwater are now going to be forced to pay more in taxes for owning the home. changing the rules after the game has started seems unfair but hey lets just keep giving the money to car companies and banks and keep mortgaging our children’s future too……good start

  11. Jessica Albarez on

    I disagree Rob only if you had more knowledge as in to real estate you would understand more this issue is best to get more in to research on this before making a statement or opinion. I do agree with Steve Heideman.

  12. David Dzidzikashvili on

    Look at the overall economic picture… And real estate is a big part of it:

    The Dow being up 61.2 percent during the past year tells us how effective the Federal Reserve has been at supporting markets, not how successful the recovery has been. The patient (economy) is still on life support. Take that away and we are completely screwed. When interest rates start to go up the true health of the economy will be uncovered. We need to develop better indicators not the same old formulas that are subject to government manipulation. But this won’t be happen until the government will have no other choice. This can lead to Economic Collapse Phase 3 (we are already in Phase 2).

    What are the logical outcomes? Unfortunately the outcomes, even the best case scenario looks pretty bad. Take just all facts, hard statistical and economic data, and start looking at the trends, formulas and factors such as unemployment rates, foreclosures, US economic productivity output, etc…

    From what I can see right now, and just relying on data – the first 6 months of 2010 (January through June 2010), Americans continue to live in the “unreality”…the period between July and October is when the financial fireworks will begin. It will become impossible for he government to hide unpleasant economic data news and the reality check will cause economic tsunami. The Fed will act unilaterally for its own survival irrespective of any political implications… Great Depression will start to look like a church picnic. Whoever has a stable job now, at this moment, might not enjoy the stability in the 3rd and 4th quarters of 2010. In this case, it’s logical to say that the FDIC will collapse during the second half of 2010. Additionally, to make things even worse, I think there is a more than 75% probability that bond market will crash, especially municipal, sometime towards the final months of 2010. These events should have taken already place in the last months of 2009, but they were delayed, only due to the government’s cash injection and bailouts. The bailouts did not address the root of the problem and in general the systemic issues have been overlooked at, because the government does not want to talk about negative events, in the world of politics, the politicians tend stress their attention on positive developments for PR needs and purposes. But ignorance will have extremely negative consequences… Add to that more than $10 Trillion US debt and record deficits… Logical question – what will happen after this?

    After this, the US government will ONLY have TWO options, bad option and even worse one. You judge which is bad and which is even worse.

    Option one: Inflate Dollar, devalue it. This is a pretty bad option, since inflation has never proven to be a viable solution. What will happen to the savings of millions of middle class Americans, who’ve worked all their lives to save money and retire, what will happen to 401Ks, social security? All gone…and done.

    Option two: Default! Yes, the US government basically filing national Chapter 7 bankruptcy for USA and telling Chinese and other creditors – Sorry, we’re SOL, we’re bankrupt, the debt is unrealistically high and we’re defaulting on all our financial obligations. This will send irrecoverable shockwave through world markets and this will be the end of Capitalism as we know it (technically we’ve already done it). But this will give a fresh start to the United States, a new currency system will be created and new social/economic/political system will be in place, a mix of socialism-more regulations-some free market (under many regulations)-and raise of Mercantilist economic policies. We need to rebuild manufacturing and re-start whole American polit-economic system (after we hit Reset button). This is not a good option either, but in these scenarios there will never be a truly viable solution.

  13. Nice posts Steve, Wayne, Jessica and David. I’m glad there are people out there still trying to reason with people.
    We need to start uniting and working together to solve problems.
    Bad mouthing and complaining will accomplish nothing.

  14. I didn’t know there were so many couples out there making $250,000+ a year out there. From what I can tell, most of you who have posted your anger at this new idea must fall in that category. If not, please read up on things before you jump off the handle. We have extremely wealthy people out there that are writing off millions each year of their interest payments on the huge mansions on the hill. If you are an average person making less that $250,000 a year, you have nothing to worry about. If you’re average, like me, making less that $50,000 a year you may actually be helped with this policy. Is this the rich peoples site??

  15. Great idea its about time someone stopped the rich from sticking it to the working man. If they dont like it they can pay there house off. This effects less than 3% of the country. Get over it people this has nothing to do w/ you. Give the middle class a break and maybe thay can spend some money. This is long over due. Why some one should write off $500K worth of morgage interest is BS. We dont need anymore McMansions.

  16. Rich people? Most people own homes and most people have mortgages. It is what is called the middle class and is one of the few deductions left to the middle class. I am not sure what planet some of the posters on here are from where they think that only “rich” people have mortgages. What absurdity. Yes i see lot of “rich” people in little ranch homes. LMAO! And by the way,income taxes should be eliminated alltogether. Read about the federal reserve and research for yourself.
    “The act created the Federal Reserve System, a name carefully selected and designed to deceive. “Federal” would lead one to believe that this is a government organization. “Reserve” would lead one to believe that the currency is being backed by gold and silver. “System” was used in lieu of the word “bank” so that one would not conclude that a new central bank had been created.

    In reality, the act created a private, for profit, central banking corporation owned by a cartel of private banks. Who owns the FED? The Rothschilds of London and Berlin; Lazard Brothers of Paris; Israel Moses Seif of Italy; Kuhn, Loeb and Warburg of Germany; and the Lehman Brothers, Goldman, Sachs and the Rockefeller families of New York.

    Did you know that the FED is the only for-profit corporation in America that is exempt from both federal and state taxes? The FED takes in about one trillion dollars per year tax free! The banking families listed above get all that money.

    Almost everyone thinks that the money they pay in taxes goes to the US Treasury to pay for the expenses of the government. Do you want to know where your tax dollars really go? If you look at the back of any check made payable to the IRS you will see that it has been endorsed as “Pay Any F.R.B. Branch or Gen. Depository for Credit U.S. Treas. This is in Payment of U.S. Oblig.” Yes, that’s right, every dime you pay in income taxes is given to those private banking families, commonly known as the FED, tax free.

  17. This is what is wrong with both income and business taxes. People making important decisions based on the tax consequences and not if it’s a good idea. Phase both of these taxes out and replace them with something equitable across the board.

  18. Economic difficulties are very real, just look at the main economic factors. High unemployment with increased foreclosure rates, banks violating foreclosure laws, the middle-class is getting screwed every single day and it keeps shrinking. Middle class is the backbone of the American economy and the future of the United States. Nothing has been done, or to be more correct there are no real results that show us positive economic trends for the future… I don’t think it’s correct to try to estimate our economic well being with Dow Jones numbers, there are many more complex economic factors at play… What’s even worse is that the Fed has run out of tools to deal with the situation.

    The Republicans have captured majority in the House but that does not guarantee the GOP automatic win in 2012. If the GOP won’t be able to deliver what it has promised, they will be in the same situation as Democrats today…and time is working against both parties, much needs to be done very soon, unfortunately for some politicians they’d rather spend their time for political infighting and other obscure reasons, rather than try to decrease unemployment and create real solutions for our economic woes.

    Just look at these facts:

    #1 Ten years ago, the United States was ranked number one in average wealth per adult. In 2010, the United States has fallen to seventh.

    #2 The United States once had the highest proportion of young adults with post-secondary degrees in the world. Today, the U.S. has fallen to 12th.

    #3 In the 2009 “prosperity index” published by the Legatum Institute, the United States was ranked as just the ninth most prosperous country in the world. That was down five places from 2008.

    #4 In 2001, the United States ranked fourth in the world in per capita broadband Internet use. Today it ranks 15th.

    #5 The economy of India is projected to become larger than the U.S. economy by the year 2050.

    #6 One prominent economist now says that the Chinese economy will be three times larger than the U.S. economy by the year 2040.

    #7 According to a new study conducted by Thomson Reuters, China could become the global leader in patent filings by next year.

    #8 The United States has lost approximately 42,400 factories since 2001.

    #9 The United States has lost a staggering 32 percent of its manufacturing jobs since the year 2000.

    #10 Manufacturing employment in the U.S. computer industry is actually lower in 2010 than it was in 1975.

    #11 In 1959, manufacturing represented 28 percent of all U.S. economic output. In 2008, it represented only 11.5 percent.

    #12 The television manufacturing industry began in the United States. So how many televisions are manufactured in the United States today? According to Princeton University economist Alan S. Blinder, the grand total is zero.

    #13 As of the end of 2009, less than 12 million Americans worked in manufacturing. The last time that less than 12 million Americans were employed in manufacturing was in 1941.

    #14 Back in 1980, the United States imported approximately 37 percent of the oil that we use. Now we import nearly 60 percent of the oil that we use.

    #15 The U.S. trade deficit is running about 40 or 50 billion dollars a month in 2010. That means that by the end of the year approximately half a trillion dollars (or more) will have left the United States for good.

    #16 Between 2000 and 2009, America’s trade deficit with China increased nearly 300 percent.

    #17 Today, the United States spends approximately $3.90 on Chinese goods for every $1 that China spends on goods from the United States.

    #18 According to a new study conducted by the Economic Policy Institute, if the U.S. trade deficit with China continues to increase at its current rate, the U.S. economy will lose over half a million jobs this year alone.

    #19 American 15-year-olds do not even rank in the top half of all advanced nations when it comes to math or science literacy.

    #20 Median household income in the U.S. declined from $51,726 in 2008 to $50,221 in 2009. That was the second yearly decline in a row.

    #21 The United States has the third worst poverty rate among the advanced nations tracked by the Organization for Economic Cooperation and Development.

    #22 Since the Federal Reserve was created in 1913, the U.S. dollar has lost over 95 percent of its purchasing power.

    #23 U.S. government spending as a percentage of GDP is now up to approximately 36 percent.

    #24 The Congressional Budget Office is projecting that U.S. government public debt will hit 716 percent of GDP by the year 2080.

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