A plan to reduce federal budget deficits and scale back the mortgage interest deduction garnered the support of 11 of 18 members on the President's National Commission on Fiscal Responsibility and Reform.
But the plan fell short of getting 14 votes that would put real pressure on Congress to pass the huge package of tax increases and spending cuts.
The National Association of Home Builders, National Association of Realtors, and Mortgage Bankers Association, said they opposed the commission's proposal to turn the MID into a 12% tax credit.
NAHB economists estimate a family with $90,000 in annual income and a $200,000 loan would see their mortgage interest tax benefit reduced from $3,000 to $1,000.
The tax credit would only apply on a first mortgage of up to $500,000. Home equity loans and mortgages on second homes would not be eligible for the proposed mortgage tax credit.
Industry groups are concerned a reduction in the MID would put downward pressure on house prices, trigger more foreclosures, and postpone any recovery in home building.
"Given the extreme fragility of the housing market, with 21% of construction workers currently idle, tampering with the mortgage interest deduction is just not sound public policy," said NAHB chairman Bob Jones.
