Outside the housing seminar on June 9, 2011.

Outside the housing seminar on June 9, 2011. Credit: Ellen Yan

Reducing the nation's deficit by eliminating the mortgage interest deduction on taxes has been an off-on discussion in the past year, and it seemed to be on again Thursday morning at Standard and Poor's housing summit in Manhattan.

Christopher Mayer, a senior vice dean and real estate professor at the Columbia Business School, suggested whittling down the tax deduction over time. He said the deduction "subsidizes" buyers of big and expensive homes but not so much first-time buyers, who tend to buy smaller and don't even itemize to take advantage of the deduction.

Instead, the deduction should be replaced by a down payment "matched credit" -- the government chips in money to help people buy, Mayer said. "It could be inordinately less expensive for the government . . . If we want to help people save for a down payment," he told a housing and finance crowd of more than 250.

The comments came during a panel focused on what's next in the housing market.

Eliminating the deduction has been tossed around even before this economic earthquake, but the controversy was revived when President Barack Obama's task force on deficit reduction proposed it. Supporters of the deduction believe it spurs home ownership.

In times past, mention of the idea would ring the alarm in housing circles, said panel moderator David Blitzer, chairman of Standard and Poor's index committee: "Red telephones go off at the home builders and mortgage bankers."

With mortgage insurer giants Fannie Mae and Freddie Mac, the housing and home finance industries easily beat back any move to get rid of the deduction, Blitzer said. These days, it'll be a different fight for the deduction's advocates, he said: "It won't be easier now because they're weakened."

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