ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Friday, February 16, 1996 TAG: 9602160032
SECTION: NATIONAL/INTERNATIONAL PAGE: A-10 EDITION: NEW RIVER VALLEY
DATELINE: WASHINGTON
SOURCE: The Washington Post
Fannie Mae and Freddie Mac, the two private corporations chartered by Congress to finance home mortgages, have given more than $100,000 to help buy advertising in Iowa and New Hampshire attacking the flat-tax proposal advocated by Republican presidential candidate Steve Forbes.
In radio commercials, newspaper ads and mailings to registered Republican homeowners, the ads argue that a flat tax without a deduction for home mortgage interest will drive down home prices and drive up the cost of home buying.
One ad equates doing away with the mortgage interest tax deduction to damage done by termites and tornadoes, and labels them all ``famous American home wreckers.''
The ads do not mention Forbes by name, but they have infuriated some Forbes supporters and tax-reform advocates.
``Here you have government-sponsored enterprises that enjoy extensive tax concessions from the government that are lobbying for a special provision in the tax code. I don't consider that appropriate,'' said House Majority Leader Dick Armey, R-Texas, a leading flat-tax proponent.
``There is a partisan flavor to it. There is nobody in the presidential sweepstakes that advocates a flat tax except Republican candidates.''
The ads are signed by the Coalition to Preserve Home Ownership, an informal organization made up of the National Association of Home Builders and the National Association of Realtors plus Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corp.).
The housing industry regards the deduction, part of the tax law as long as there has been an income tax, as a bulwark of the American Dream. Nonpartisan polls have shown that the deduction is extremely popular with voters. It saves homeowners an estimated $59 billion in taxes annually.
The deduction encourages home ownership, the industry says, and thus makes for more stable communities. Without it, according to the Realtors, homeowners could not afford their mortgage payments and home values would plummet, wiping out much of the value of most people's biggest asset.
Some economists predict that taking away the deduction would depress home prices, leaving owners with little or no equity and no reason to keep paying mortgages. A study made for the Realtors projected that would lead to $100 billion in foreclosures, causing massive losses for Fannie Mae, Freddie Mac and other lenders.
Flat-tax proponents counter that the deduction is unfair and that the economic effects of eliminating it wouldn't be that drastic. They say it wrongly favors owners over renters and the well-off over those with less income. They also say that switching to a flat-tax system would cause interest rates to drop drastically and cancel out any drop in home values.
Federal Election Commission records show the Coalition to Preserve Home Ownership is not registered as a political-action committee. Specialists in campaign finance disclosure say it probably doesn't have to be. ``It's one of the great gray areas of election law,'' said Washington lawyer Jan Baran. As long as the ads do not name a candidate or election, the sponsor does not have to register, he said.
Fannie Mae, based in Washington, and Freddie Mac, of McLean, Va., are all-but-identical twin corporations owned by shareholders under congressional charters that allow them to borrow money cheaper than other firms and pass the lower rates on to home buyers. Both are allowed to borrow from the Treasury in emergencies and are exempt from state income taxes.
LENGTH: Medium: 68 linesby CNB