The fight to restore the mortgage insurance tax deduction and make it permanent was revived in Congress, with the introduction of a bipartisan bill in the House of Representatives.
However, similar bills in both the House and Senate introduced in the last session failed to gain traction.
The move has broad support in the mortgage, banking and housing industries; signatories to a November letter sent to Senate Committee on Finance chairman Ron Wyden, D.-Oregon, and ranking member Mike Crapo, R.-Idaho, including the U.S. Mortgage Insurers, Mortgage Bankers Association, Community Home Lenders of America, the National Association of Hispanic Real Estate Professionals and American Bankers Association, among others.
This new bill, “The Middle Class Mortgage Insurance Premium Act of 2023,” is sponsored by Reps. Vern Buchanan, R.-Florida and Jimmy Panetta, D.-California.
“We are grateful to Representatives Buchanan and Panetta for their continued leadership on this critical legislation that would make permanent the ability of middle-class homeowners to deduct private and government MI premiums on their individual federal income tax returns, importantly restoring parity with the deductibility of mortgage interest,” a statement from USMI President Seth Appleton said.
Borrower-paid mortgage insurance premiums finally became deductible in 2007 after several years of efforts by the industry; in Congress this was led by Sen. Gordon Smith, R.-Oregon.
But Congress failed to make that permanent and therefore it had to be reapproved on an annual basis. It continued with several extenders but passage was not guaranteed, as battles for inclusion in 2011 and 2014 showed.
The deduction expired after tax year 2021. Between 2007 and 2020, homeowners claiming the deduction, which also applies to Federal Housing Administration and Veterans Affairs mortgages, saved a total of over $61 billion on their taxes, the USMI said. An average of 3.3 million people claim the deduction each year for an average of $1,427.
Premiums for lender-paid mortgage insurance can be deductible because those are rolled by the loan originator into the borrower’s interest payment. However, LPMI’s drawback is that it’s not cancellable, which affects its popularity with consumers.
“As affordability remains a persistent barrier to homeownership across the country, particularly for first-time homebuyers, the need for this legislation is even more urgent today than when the deduction was first enacted,” Appleton said. “Low down payment mortgages, including conventional loans with private MI, have proven critical for millions of low- and moderate-income, first-time, and minority borrowers to sustainably buy a home sooner, secure financial stability, and build intergenerational wealth.”