Ranieri Says U.S. Should End Deduction on Second Homes

The mortgage-interest deduction for vacation homes and other non-primary residences should be eliminated as part of a U.S. housing-finance overhaul, said Lewis Ranieri, a pioneer of loan securitization.

“We don’t need a deduction on second homes,” the chairman and founding partner of New York-based Ranieri Partners Management LLC said today during a panel discussion at the Milken Institute Global Conference in Beverly Hills, California. The allowance is “nice but not necessary,” and limits on primary-residence deductions should be considered too, he said.

The provision that allows taxpayers to deduct mortgage interest on second homes will be altered eventually, U.S. Senator Bob Corker, a Republican from Tennessee, said during the discussion. While President Barack Obama’s administration and Congress have publicly found “no common ground” on most issues regarding housing-finance reform, there is agreement on eliminating the tax break for non-primary residences, he said.

“There’s no question that it’s going to change,” said Corker, a member of the Senate’s banking committee who is running for re-election in November.

Ranieri, who packaged home loans into securities at Salomon Brothers, making it Wall Street’s most profitable firm in the 1980s, also said that Fannie Mae (FNMA) and Freddie Mac must be restructured to give private investors the confidence to re- enter the mortgage market. The agencies, seized by the federal government in 2008 after the housing collapse, own or guarantee 60 percent of the nation’s home loans.

‘Shelter, Not ATMs’

Mortgage securitization, blamed for helping inflate the U.S. housing bubble, initially allowed more Americans to buy homes and use them as “as shelter, not ATMs,” Ranieri said. The mortgage-bond market worked “reasonably well” for more than 30 years before being undone by lax underwriting standards during the run-up in residential-property values, he said.

U.S. home prices probably bottomed in the third quarter of 2011 except in some “bubble markets,” according to Ranieri.

He also said that the Obama administration’s retooled Home Affordable Refinance Program, known as HARP II, is “building up a head of steam” after the plan initially failed to help millions of property owners in need of assistance, Ranieri said.

To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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