|Mortgage bankers and brokers should be concerned about reports that the Bush administration is starting to use the "F" word in Washington.
Not the "F" word Vice President Dick Cheney recently used in berating a Senator on the floor of the Senate.
"F" as in flat tax, which would lead to the elimination of the tax deduction on mortgage payments.
And that, according to the National Association of REALTORS (NAR), would cut home sales faster than a bad home inspection report.
"The mortgage interest deduction has been part of U.S. tax policy since the federal tax code was first enacted in 1913," the NAR said in a written position statement.
"Diminishing or repealing the mortgage interest deduction would make it nearly impossible for millions of Americans to own their own homes, effectively closing the door on the American dream," the association said.
Reports began filtering out of Washington last week that President George Bush was considering a major overhaul of the nation's tax code during his second term -- provided he beats Democrat Sen. John Kerry of Massachusetts in November.
The administration's plan, which has not been formally unveiled, would include eliminating the mortgage and charitable deductions in favor of a flat tax on income, consumption -- basically a national sales tax -- or a combination of both.
The administration has not commented. But Bush may be playing the oldest game in Washington -- float an idea, see how it plays and then either move forward or retreat depending on the reaction.
The fervor started last week when Sen. Sam Brownback, R-KS, said during a CNBC interview that Bush was considering the flat tax, according to Internet transcript of the program.
The Wall Street Journal reported the same information late last week.
That brought a flurry of criticism from Democrats. They contend Bush's plan would not only push more of the tax burden on the poor, but it would also eliminate one of the last tax breaks available to most Americans -- the mortgage deduction.
"A flax tax would do nothing but flatten the middle class," U.S. Rep. Robert Matsui, D-Calif., said in a statement distributed by the Democratic National Committee (DNC).
"If the president is considering restructuring the tax code to benefit his wealthy friends, then he should be upfront with the American people right now," Matsui said. "If this is the agenda he has waiting for us in a second term, I'm pretty sure we don't want to turn that corner."
Under current federal tax law, homeowners can take up a $1 million annual deduction on their primary residence and one additional residence, the NAR said.
Up to $100,000 in interest on home equity loans can also be deducted.
"The tax deductibility on interest paid on home mortgages is both a powerful incentive for homeownership and one of the simplest provisions in the tax code, and it should not be changed," the NAR said.
By early this week, the Bush administration appears to have backed off the idea -- at least for now.
The Wall Street Journal reported that while it is true the Bush administration is crafting a new economic plan, the idea of a flat tax that kills the mortgage penalty is off the table.
But in case, though, the NAR said it is poised for a fight.
"NAR strongly opposes any attempts to alter the current tax treatment of mortgage interest," the association said.
That threat is not hollow.
In 1995, the last time a flat tax was seriously pondered by Congress, REALTORS helped kill the idea.
"The politically powerful (NAR) launched an attack against the flat tax," according to a report from the National Center for Policy Analysis, a Washington think tank.
"Its in-house newsletter even declared 'It's War!'"
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