Down Payment Savings Accounts?

Could we encourage home ownership more effectively than the mortgage interest deduction by allowing tax-free down payment savings accounts?

The mortgage interest tax deduction is a point of contention given that it may have encouraged people to buy houses too big for their budgets, making defaults more likely after the economy tanked in 2008. And it might provide more aid to the wealthy even though it surely helps the middle class. But eliminating it would hurt existing people who relied on it to afford a home.

I'm just tossing this out. But until somebody points out all the obvious flaws, couldn't we phase out the mortgage interest deduction over time by gradually reducing the allowable amount of the deduction, while replacing it with a plan that allows people to contribute pre-tax money to down payment savings accounts?

This would encourage larger down payments if using the accounts and retaining the tax-free status requires you to make a 20% down payment on the home that will be your primary residence.

If you could also put money from the sale of an existing primary residence into the accounts, you'd encourage resale, too.

And cap the amount you can expend tax free. Base it on regional home prices, if you like, so expensive areas aren't disadvantaged. Or base the cap on regional income averages.

By putting the tax advantages into the down payment, you'd also avoid the tendency to factor in the mortgage interest deduction into calculating how much of a monthly housing payment you could afford.

The 2009 stimulus first-time home buyers credit always seemed rather unfair to me by benefiting taxpayers who happened to be in the market at the time for their first home while leaving out taxpayers who had already bought a first home or who just weren't ready to buy their first home when the program was in effect. Unfair, no?

So why not have a general program for all? I'm sure the math can be worked out to make this revenue neutral, if it is really so horrible to cut taxes overall when it is set up.

Further, it might deter people from taking out loans on their homes for things like vacations--which can put homes under water if housing values drop--because they'd lose a lot of cash by selling a home with more debt and lose the ability to roll over a tax-free down payment to buy a new home.

Anyway, this is just my first impression and is admittedly outside my lane--even my old lane of domestic policy. So take it for what it's worth.