The Chron is reporting today that “President Bush’s Advisory Panel on Federal Tax Reform is likely to propose next week a change in the deduction for home-mortgage interest that, if adopted by Congress, would have a drastic impact on the Bay Area and other regions with high housing prices.”

“In a meeting Tuesday, the panel agreed to recommend lowering that limit, perhaps to the maximum mortgage that can be guaranteed by the Federal Housing Administration. The FHA limit varies by region, but in the Bay Area and most of coastal California is $312,895.”

“The panel has not decided whether its new mortgage-interest rule would apply to existing homeowners but is likely to recommend grandfathering them in under the old law, says Jeff Kupfer, the panel’s executive director.”

Grandfathering? Wow. You think home prices are high now? If this one goes through, you’ll see prices go through the roof right up till the deadline as people scramble to get into fully-deductible mortgages.

“I think it’s dead on arrival,” says Ken Rosen, professor of real estate and urban economics at UC Berkeley’s Haas School of Business. “It’s very biased against California and New York and favorable to Texas.”

And there you have it… The real reason behind the whole debacle…

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