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The fate of Fannie and Freddie is not the only factor creating more uncertainty for the housing market. A growing number of experts are looking at the mortgage interest tax deduction. Thats the tax break that puts money into the pockets of millions of homeowners. Getting rid of that break has been politically unthinkable. That may be changing.

NPR's Chris Arnold reports.

CHRIS ARNOLD: A growing number of economists are telling Congress that the time has come to phase out the sacred tax break for homeowners. But don't tell that to anybody who works in real estate.

Ms. WENDY ROCCA (Realtor, Century 21): Get rid of the mortgage interest tax deduction would just kill the market.

ARNOLD: Wendy Rocca is a realtor at a Century 21 office in Watertown, Massachusetts. She and the other realtors here do not like the idea, especially now with the housing market just barely starting to recover.

Ms. ROCCA: I think it would really put a damper on homeownership completely if it was removed.

ARNOLD: Realtor Medea Palandjian says she often explains to first-time homebuyers how they can deduct the interest that they pay on their mortgage.

Ms. MEDEA PALANDJIAN (Realtor, Century 21): Absolutely. I mean specifically I have one that was on the fence about rent versus own. And I said speak with your mortgage person so you understand all the benefits and all deductions that you get on top of it. But if that benefit was taken away, it would just make it all that much harder to buy.

ARNOLD: But many economists are skeptical that the tax deduction really does promote homeownership. They say the homeownership rate in the U.S. is about the same as in Canada, Australia or England. And those countries do not offer such a tax break. Also, they say it favors wealthier people who can write off loans on their primary residences and even on second homes up to a million dollars.

Mr. TED GAYER (Senior Fellow, Brookings Institution): The mortgage interest deduction, while many people gain from it, is not a wise use of our tax dollars at this point.

ARNOLD: Ted Gayer is an economist and a former Treasury Department official. He says here's the problem: The federal deficit is now more than $14 trillion. And that many economists say the government at some point has to trim spending and raise more revenue to pay down that debt. And Gayer says that the mortgage tax break costs the government a ton of money.

Mr. GAYER: This is a biggie.

(Soundbite of laughter)

Mr. GAYER: You know, the forecast for the next few years range from about $100 billion to $130 billion a year. So, you know, over a four-year period, you're probably around $500 billion.

ARNOLD: A bipartisan federal commission looking for ways to balance the budget recently recommended ending the tax break. It would replace it with a less costly tax credit that would reach more lower-income Americans. It also suggested excluding mortgages that are larger than $500,000.

But is anything like that actually politically feasible?

Mr. JAY BRINKMAN (Chief Economist, Mortgage Bankers Association): All we're trying to say is well, look at what the cost is of doing this.

ARNOLD: Jay Brinkman is chief economist with the Mortgage Bankers Association. He says that the move would push down home prices. And his industry group will be lobbing very hard to save the tax break.

Mr. BRINKMAN: Not to mention people with mortgages who are taking the deduction who are more than capable of sending an email or a letter to their congressman saying boy, I'd really like to try and keep that $300 or $400 a month.

Mr. JAY HUGHES (Mortgage Advisor, Century 21): Yeah, you got about 60 days there. Dont worry about it. Just go and look at stuff. Go fall in love with the property.

ARNOLD: Back at the Century 21 office, mortgage advisor Jay Hughes, is working the phone. He's hoping that nothing changes with the tax break. And he says it seems okay that a wealthy lawyer or doctor gets a tax write-off on say, a ski house.

Mr. HUGHES: So he's buying a ski house, so that means he's buying ski passes. He's buying skis. Hes buying, you know, snow removal guy. So he's putting those guys to work and around that area.

ARNOLD: With the housing market still shaky, it's unlikely that the government would do anything to end the tax break right away. But it is one of the unpopular moves that lawmakers are starting to consider to get the federal deficit under control.

Chris Arnold, NPR News, Boston.

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