FHCE 3300 Midterm: study guide 6

2 Pages

Financial Planning, Housing and Consumer Economics
Course Code
FHCE 3300
Kim Skobba

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o Secondary mortgage market (Fannie Mae and Freddie Mac) ➢ Mortgage Interest Deduction • Originated by the Union during the Civil War • Emergency income tax that excluded interest and payments from the definition of income • Federal government used this definition when permanent income tax was established in 1913 • Had minimal effect on nation’s tax expenditures for many decades • Became a substantial tax expenditure as homeownership rates climbed in the 1940s and 1950s • 84% of all federal tax expenditures in 2009 went to homeowners • The largest tax break is the deductibility of mortgage interest payments from taxable income • Example: o Annual household income = $50,000 o Mortgage interest paid (year) = $9,600 o Taxable income = $40,400 ➢ Tax Expenditures • Expenditures: o Spending programs implemented through the tax code. o Give people and businesses special tax credits, deductions and preferential rates in support of various government policies. • Compared to Direct Spending/Budget outlay: o The government takes tax dollars and gives them to others (individuals, programs) for a specific purpose. ➢ Funding Amount by Program Type Program Annual Cost Housing vouchers, project-based $37 billion housing assistance, block grants (outlay) Mortgage interest deduction (Tax $118 billion expenditure) * Additional homeownership-related spending: FHA, Fannie Mae, Freddie Mac ➢ Recovery from The Great Depression/Housing Boom • 1940s: o FHA and VA loans available to returning war veterans • Low down payment (10% or less) • Long-term financing over 25 years o Farmers Home Administration • Began making direct loans to purchase and rehab rural farm homes • 1950s: o Federal financing of suburban expansion ➢ Expansion of Homeownership • The policy initiatives by the U.S. federal government greatly expanded homeownership in the United States • Government intervention made homeownership more affordable than renting • Federal housing policies have had a substantial impact on how and where Americans live ➢ Hi
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