The mortgage and real estate markets have unsurprisingly responded coolly to the National Commission on Fiscal Responsibility and Reform's proposals for tax reform, which include rolling back components of the mortgage interest deduction (MID). On Wednesday, the commission, a bipartisan entity established by the Obama administration, released its suggestions for cutting the national deficit in a report titled "The Moment of Truth".

Under current law, mortgage interest is deductible for itemizers, and the MID covers mortgages of up to $1 million for primary and secondary residences. The MID also applies to home equity loans of up to $100,000.

The commission recommends revising the tax code to include MID provisions for principal residences only, as well as lowering the cap on eligible mortgages to $500,000.

“Recent progress has been made in bringing stability to the housing market, and any changes to the MID now or in the future could critically erode home prices and the value of homes by as much as 15 percent, according to our research," says Ron Phipps, president of the National Association of Realtors.

California Association of Realtors (CAR) President Beth L. Peerce says that "any change that reduces the ability of the market to heal is misguided and must be rejected." According to the CAR, of the taxpayers who itemize deductions, more than 81% take the MID.

Michael D. Berman, chairman of the Mortgage Bankers Association, has similarly slammed the commission's proposal, saying alterations to the MID would have a "devastating impact."

"It would immediately stop in its tracks any stabilization we are seeing in the housing market and would effectively increase the cost of homeownership for millions upon millions of people," Berman says.

SOURCES: MBA, NAR, CAR, Fiscal Commission