The chair of the Federal Deposit Insurance Corp. Shelia Bair warned that if left unchecked, rising government debt could rise to 185% of the country’s gross domestic product by 2035.

And Bair added that popular tax benefits for mortgage borrowers are partially to blame.

“This explosive growth in federal borrowing is a result of not just the financial crisis but also government unwillingness over many years to make the hard choices necessary to rein in our long-term structural deficit,” Bair wrote in an editorial, “Will the next fiscal crisis start in Washington?” published in The Washington Post Friday.

“Overly generous tax subsidies for housing and health care have contributed to rising costs and misallocation of resources,” Bair continued.

Recent proposals to reduce the deficit have included an overhaul of the tax code that would limit, and in some cases eliminate, the mortgage interest tax credit. It’s one of the most controversial items in the proposals, drawing ire on both sides of the aisle.

But the fact that it’s even being discussed is a signal of a culture shift in Washington, Lisa Marquis Jackson, vice president of John Burns Real Estate Consulting, told National Mortgage News.

“The tax credit is one example of something that was sacred one or two years ago, but isn’t so sacred anymore,” she said. “Some of that is likely political posturing, as well as an interest in helping reduce the deficit.”

Jackson recently wrote that it seemed unlikely Congress would reduce the mortgage interest credit, except maybe to drop the cap below $1,000,000. But now it appears the cap could be lowered significantly.

“Now that the tone is not about pushing the homeownership rate up and the focus is more about lending to responsible borrowers, the trend will swing to more of a rental society and a push will be made to promote affordable, nice places for people to live,” she told National Mortgage News.

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