FHCE 3300 Study Guide - Midterm Guide: Secondary Mortgage Market, Freddie Mac, Tax Expenditure

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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 (cid:373)i(cid:374)i(cid:373)al effect o(cid:374) (cid:374)atio(cid:374)"s ta(cid:454) e(cid:454)pe(cid:374)ditures for (cid:373)a(cid:374)(cid:455) 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: annual household income = ,000, mortgage interest paid (year) = ,600. Spending programs implemented through the tax code: give people and businesses special tax credits, deductions and preferential rates in support of various government policies. The government takes tax dollars and gives them to others (individuals, programs) for a specific purpose. Housing vouchers, project-based housing assistance, block grants (outlay)

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