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Banks, just off their victory in Congress on the Visa/Mastercard Protection Act new bankruptcy law, have gotten their lobbyists to insert a provision in yet another rushed tax bill that puts about 1 billion new provisions in the tax bill that was only supposed to extend existing provisions.

This time, PMI will be deductible for loans that originate in 2007. PMI, for those who gleefully haven’t had to deal with it, is foisted upon borrowers with less than 20% equity by the mortgage bank in order to get the loan. The PMI will pay your loan if you go into default.

PMI is not deductible as mortgage interest is and has led to a great competition among banks. Some banks will forgo PMI if you take a second mortgage with a higher rate for the portion above 80% of the selling price. The banks that are making boatloads of money off of require PMI didn’t like this tax competition.

So, they got the provision in the tax code to deduct PMI only in 2007 for mortgages originated in 2007. But as we all know, “temporary” provisions have a habit of living on forever. Most of the provisions that got extended this year (and last and the year before that) were “temporary” tax breaks only for that year. It helps hold the cost down for budget purposes when they can assume that the tax breaks will be allowed to expire, even when everyone knows that they won’t.

And it’s another example of poking a hole in the tax code to benefit a small number of banks (yes, individuals will benefit and that’s the official line, but it’s the banks that will get the most benefit from lessened competition). Which means we’ll go through this whole extenders fiasco again next year with the PMI provision added to the list.