Recently, Congress has passed legislation lowering the mortgageinterest deduction limit from $1,000,000 to $750,000.
A. What is the mortgage interest deduction?Which types of mortgage borrowers benefit most from it, andwhy?
B. The mortgage interest deduction is oftencriticized by economists and others. What are some of the keyproblems or issues which are highlighted by these critics? Can youthink of any counterarguments?
C. Thinking about the user cost model westudied in class, what effect would cutting or eliminating themortgage interest deduction have on the cap rate for residentialreal estate. Would this effect be larger when interest rates arelow or when rates are high? Explain.
