December 07, 2006 06:41 ET

Mortgage Interest Deduction More Hype Than Help Says MIFSP

ATLANTA, GA -- (MARKET WIRE) -- December 7, 2006 -- Many of the largest national banks along with numerous mortgage originators and others are identified as direct and indirect sources of seriously flawed mortgage calculators and calculations that significantly overstate and grossly misrepresent the consumers' tax savings from the mortgage interest deduction, according to a report soon to be released by the Mortgage Institute For Financial Services Professionals, Inc. ( "Consumers may be making unsuitable mortgage decisions relying, at least in part, on calculators that spew out highly inaccurate, misleading and biased information that leads the consumer to believe that their tax savings from the mortgage interest deduction will be far greater than it will actually be," says Leon Morris, RMP®, Executive Director of MIFSP.

Morris believes faulty mortgage calculators encourage mortgage transactions (purchase, refinance, debt consolidation, cash-out, 2nd mortgages, home equity loans, etc.) that unnecessarily cost consumers millions or maybe billions of dollars annually and raise the cost of homeownership under the guise of being tax-wise and beneficial to consumers. Many of the banks tout how these calculators influence consumer-buying decisions. The report is said to state that many of the errors stem from the mistake of failing to recognize a consumer's tax filing status and the consumer's entitlement to a standard deduction. According to Morris, not taking those factors into account warps the entire calculation.

"We used an example of a married couple filing a joint return in the 25% marginal tax bracket who has a $250,000 home, and a 30-year 6.5% fixed rate mortgage with a $200,000 balance. Mortgage interest amounts to $12,934 and annual property taxes are assumed to be $2,500. Total itemized deductions come to $15,434. Using that example, we went to the websites for Bank of America, Wells Fargo, and Chase Bank for instance and were linked to a mortgage calculator, which calculated the annualized tax benefit of buying to be $3,858. However, if the calculators had taken into account the standard deduction for 2006 of $10,300 for a married couple filing jointly, the actual tax benefit is only $1,284 and if we move forward to 2007 when the standard deduction for this filing status increases to $10,700, the tax benefit would be even less. For 2006, the calculators overstated the tax benefit by 300%. Using those calculators, someone making a rent versus buy decision who was counting on the tax benefit to offset the cost of homeownership could possibly start to find themselves in trouble from the outset. The calculators we tested usually posted a disclaimer regarding the accuracy, however, due to a bank's name and reputation a consumer may not expect the calculator to be off by that much or that some basic tax considerations wouldn't be taken into account," says Morris.

The report shows the results of testing mortgage calculators and mortgage calculations provided on and through websites for hundreds of banks, mortgage originators, and other financial institutions and financial service providers. "Faulty mortgage calculators hype the tax benefits of the mortgage interest deduction, and the providers are doing a disservice to consumers. In an effort to promote mortgages, consumers are being misled about the tax benefits of having one. The widespread errors found in our testing leads me to believe that this may be the largest ongoing instance of an unfair and deceptive trade practice ever perpetrated upon the American people and American homeowners in particular. Federal and state laws and regulations define unfair lending and unfair and deceptive trade practices so we intend to make our findings known to the Department of Justice, the Department of Housing and Urban Development, and the Federal Trade Commission as part of our ongoing effort to raise industry standards and bring about positive industry change while continuing to promote the need for unbiased Fiduciary Mortgage Advisor™ professionals," says Morris.

The report titled "Mortgage Interest Deduction More Hype Than Help" is available at Books & Reports ( "There's lots of talk about the need for consumer education, but in order for consumers to make better decisions, they've got to be given better information; and when it comes to the mortgage interest deduction, they're not only being miseducated, they're being misled," says Morris.

This report isn't the only one that MIFSP expects to release very soon. Morris says MIFSP is also looking at other ways consumer mortgage decisions are inappropriately influenced and how those who purport to help often do more harm than good.

About MIFSP: MIFSP offers the only educational program in Mortgage Based™ Financial Planning.

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