Divisions Start to Show in Homeownership Lobby

Slowly but perceptibly, cracks are starting to appear in the political coalition that sold us the idea that buying a home embodies the American dream.

Consumer groups that once touted home ownership as the best way for low-income families to join the middle class are now tweaking their message by prioritizing policies that would boost the supply of affordable rentals.

That could be a bad sign for the housing industry as it fights to maintain the once-sacred mortgage interest deduction.

Part of what made Washington's homeownership lobby so effective in the 1990s and 2000s was that its membership went beyond private-sector companies that made money off home sales.

Yes, the realtors, the home builders, the mortgage bankers, and the unshackled, shareholder-owned versions of Fannie Mae and Freddie Mac all helped convinced Congress to lard on subsidies for home buyers. But a key supporting role was played by left-leaning nonprofit organizations that entered into a tacit alliance with the housing industry.

During the housing boom, while low-income and minority families were getting more opportunities to buy homes, the nonprofit housing groups did not fight homeownership subsidies that primarily benefited the well-off.

Emblematic of this alliance, though hardly the only example, was the National Council of La Raza, which touts itself as the nation's largest Hispanic civil rights and advocacy organization. Early in the 2000s, the organization entered into partnerships with Wells Fargo (WFC) and Bank of America (BAC) to promote Latino homeownership.

At one point the National Council of La Raza lent its voice to an industry campaign taking aim at the "Hispanic Homeownership Gap."

Channeling the bubble-era zeitgeist, the civil rights organization stated: "Hispanic families are no different from other Americans in their desire to use home equity to provide for their children's education, open small business, and provide financial security for emergencies and retirement."

Today, as the nation's foreclosure crisis drags on, the National Council of La Raza sounds a bit less gung-ho about the merits of home buying.

The organization has long maintained that homeownership needs to be sustainable, according to Janis Bowdler, director of its wealth-building policy project. But she adds: "Certainly it's fair to say that we've sharpened our thinking on what is sustainable."

In one important measure of change, the National Council of La Raza recently gave its support to a legislative effort to reduce the mortgage interest deduction.

Under legislation sponsored by Democratic Rep. Keith Ellison, the largest residential mortgage eligible for a tax break would be reduced from a $1 million to $500,000. The deduction would also be converted into a 15% tax credit. That would spread its benefits among the many low-income homeowners who do not itemize their deductions.

And the bill would plow the estimated $20 billion in annual savings back into affordable housing programs – with an emphasis on rental housing for the very poor.

Under current law, 77% of the benefits from the mortgage interest deduction go to taxpayers who earn $100,000 or more, according to the congressional Joint Committee on Taxation.

"The mortgage interest deduction has long been pointed to as highly regressive," says the National Council of La Raza's Bowdler.

The National Community Reinvestment Coalition is also endorsing the reform proposal. The NCRC has long been a thorn in the side of banks on fair-lending issues. But on homeownership policy it has generally not crossed swords with the housing industry.

Back in 2010, John Taylor, the NCRC's president, told the New York Times: "Let's not throw out the baby with the bathwater … I think owning a home is the most common way for working-class people to join the middle class."

Taylor didn't respond to messages seeking comment on his organization's decision to support a reduction in the mortgage interest deduction.

But in November Taylor told the Huffington Post: "It's time to take a closer look. … This is far and away the government's largest housing subsidy, and it primarily benefits people who are financially comfortable and some people who are extremely financially comfortable."

Because the mortgage interest deduction primarily benefits the well-to-do, some liberal policy groups have long favored reducing it. And now, as the tax reform debate heats up in Washington, those groups see an opportunity.

"The reason that we're going at the mortgage interest deduction now in a way that's much more focused," says Sheila Crowley, chief executive of the National Low Income Housing Coalition, a group that seeks affordable housing for the very poor, "is that it's on the table."

The housing industry is going to fight hard to keep the mortgage interest deduction intact. But with liberals beginning to congeal against them, their task could become more difficult.