With nonstop elections occurring in Wisconsin over the last two years, many Wisconsinites are suffering from election fatigue. This fatigue may cause some to question whether it is worth going to the polls again, or whether it would be better to sit this election out.

For REALTORS^® who may be pondering whether or not to vote, the answer is clear — the 2012 presidential election is too important to the real estate industry to stay home. While the housing industry is seeing signs of improvement, the federal deficit continues to grow and the number of unemployed is still too high. The economic outlook for the United States is unclear at best, and any new setbacks could prolong the housing recovery.

Despite the lagging national economy, Wisconsin appears to be in better shape than many other areas of the country. After erasing a $3.6 billion state budget deficit without raising taxes, our fiscal house is in order. In addition, we passed major regulatory reform during the last legislative session to improve the regulatory climate necessary for economic development expansion, retaining existing businesses and protecting property rights. Moreover, Wisconsin attempted to improve the tax climate by freezing property taxes and virtually eliminating income taxes on manufacturers. However, more must be done to improve job growth in the Badger State. 

Ultimately, the recovery of our national and state economies is inextricably linked to the recovery of our housing market, and the next president — whether it is Barack Obama or Mitt Romney — will have some significant housing issues to address. The most fundamental housing issue facing both presidential candidates is what future role will the federal government have in housing? Although the answer to this question is somewhat unclear at this time, we can gain some insight by looking more closely at the candidates’ positions on three key housing issues: the mortgage interest deduction, the secondary mortgage market and foreclosures. 

Mortgage interest deduction

One issue in the upcoming election that could have a significant impact on the real estate industry is whether the federal tax deduction for mortgage interest will be changed or eliminated. Currently, homeowners may deduct the interest on mortgage loans for primary and secondary residences up to $1 million of mortgage debt. Also, the interest on home equity loans up to $100,000 may be deducted. The mortgage interest deduction (MID) provides about $90 billion in tax savings to homeowners each year, and has been a catalyst to promoting homeownership in the U.S. since 1913. 

In an effort to help address the U.S. budget deficit, many have suggested that the MID should be eliminated, reduced based on income or mortgage amount, or limited to primary residences. While any of these suggested changes could hurt the Wisconsin real estate industry, the elimination of the MID on second homes would be particularly harmful due to Wisconsin’s large second-home market. Moreover, reducing or eliminating the MID could result in greater foreclosures and further price deductions, which could send the improving real estate market into another decline. 

Under his 2013 budget proposal, President Obama would eliminate the MID for married taxpayers making more than $250,000 and for single taxpayers making more than $200,000. On the other hand, Mitt Romney has indicated that he would maintain the MID, despite claims by economists and others that his tax cut proposal doesn’t balance out unless the MID is severely cut or eliminated. 

Secondary mortgage market

Another key issue in the upcoming election will be what role, if any, the federal government will play in the secondary mortgage market. Since the 1990s, Fannie Mae and Freddie Mac (which are privately owned but are sponsored by the federal government) have backed more than 90 percent of the home mortgages originated in the U.S. This backing has helped make home mortgages more accessible and affordable to millions of Americans who would not have been able to otherwise become homeowners. 

However, due to bad investments in subprime loans and other risky home mortgage loans, Fannie Mae and Freddie Mac experienced severe financial troubles and needed to be bailed out by the American taxpayers, which some estimate will cost over $360 billion. In addition, the U.S. Treasury Department has now taken control over both entities.

Both President Obama and Mitt Romney have indicated that Fannie Mae and Freddie Mac cannot continue to exist in their current form and need to be restructured. Last year, President Obama outlined three possible ways to change the role played by Fannie and Freddie in the mortgage market but didn’t express a preference for any of the options. Nevertheless, it is believed that President Obama would prefer to replace Fannie and Freddie with a system that shifts more insurance responsibilities to private companies and limits the federal government’s role to providing only disaster-relief insurance in the event that the private companies go belly up. 

Mitt Romney also supports replacing Fannie and Freddie with a private sector solution, but he has yet to release any details on what that would look like. 

This is significant because it is widely believed that a more limited role by the federal government in the secondary mortgage market will lead to shorter-term mortgages, (e.g., the elimination of the 30-year mortgage,) higher interest rates and possibly higher down payment requirements.

Foreclosures

While the number of foreclosures has improved both nationally and in Wisconsin, foreclosures will likely continue to be an important issue given that an estimated 25 percent of American homeowners currently owe more on their mortgages than their property is worth. 

Both President Obama and Mitt Romney support the selling of some 200,000 foreclosed homes owned by the federal government and converting them into rental housing. 

In the past several years, President Obama has created several mortgage modification programs, such as the Home Affordable Modification Program and the Home Affordable Refinance Program, that have helped more than 5 million homeowners modify loans and avoid foreclosure. In addition, the president also proposed providing more money to local communities ($15 million) to partner with the private sector in buying and rehabilitating foreclosed homes to help stabilize local neighborhoods and real estate markets.

Mitt Romney has expressed support for providing the federal government with more flexibility to pursue foreclosure alternatives such as short sales, deed-in-lieu transactions and shared appreciation.
Failure to develop an effective foreclosure policy could hurt the housing recovery and further stagnate economic and job growth throughout the country. 

Given the magnitude of these issues, it would not be an exaggeration to state that the housing market as we know it could significantly change as a result of this election. Because the outcome of the presidential election could impact, among other things, the price we pay and how we finance home purchases in the future, please remember to vote on November 6.

Tom Larson is Vice President of Legal and Public Affairs for the WRA.