MBA Offers Recommendations on Senate Tax Reform Bill

The Mortgage Bankers Association, in a Nov. 13 letter to members of the Senate Finance Committee, offered recommendations to the Senate version of tax reform legislation it believes would enhance home affordability and provide favorable tax incentives.

In the letter to Finance Committee Chairman Orrin Hatch, R-Nev., and Ranking Member Ron Wyden, D-Ore., MBA President and CEO David Stevens, CMB, said while the Senate version of the Tax Cut and Job Act would provide both owners and renters with more take home pay by lowering overall tax rates and nearly doubling the standard deduction, as well as preserving the mortgage interest deduction at its current $1 million cap, MBA is concerned that the cumulative impact of changes to mortgage interest and property tax deductibility could erode home affordability and eliminate important financing options for many Americans.

“The Finance Committee–and the Congress as a whole–should take this opportunity to think creatively about new homeownership incentives targeted more efficiently to low- to moderate- income borrowers,” Stevens said.

For example, Stevens said home equity is a critical source of financing for low- and middle-income households for home improvements, college tuition and other emergencies. “MBA believes deductibility of a portion of home equity indebtedness should be retained,” he said. “In addition, the deduction for property taxes helps families overcome affordability challenges in high cost and/or high tax jurisdictions. We believe these features should be preserved.”

MBA noted favorably that proposed changes to the portion of the tax code allow homeowners to exclude a portion of the gains on the sale of a home includes exceptions for certain individual circumstances. “However, we believe the longer hold period for the capital gains rollover will act as a disincentive for many homeowners to move up or for older homeowners to move down,” Stevens said. “This would further exacerbate the current lack of housing supply that has made it even more difficult for younger buyers to move into homeownership. As a result, we would strongly urge retention of the current law provision in this area.”

MBA also said it was pleased the bill preserves business interest deductibility for real estate as well as Section 1031 like-kind exchanges for real property.

“Continued deductibility of business interest for real estate will ensure that the cost of financing remains affordable and real estate activity remains a vibrant portion of the economy,” the letter said. “The current utilization of Section 1031 provides benefits that help promote ongoing investment patterns within local real estate markets, which, in turn, provides the foundation for economic growth.”MBA also noted its support of other key proposals, including preserving real estate investment incentives such as the Low-Income Housing Tax Credit and the tax-exempt status for private activity bonds, “as these provisions help ensure the continued development of affordable multifamily housing, as well as access to affordable mortgage credit.”

With respect to new treatment of pass through entities, MBA recommended language clarifying that the definition of “specified services” companies for purposes of determining businesses that would be excluded from the application of the new tax deduction on certain income of pass through entities does not include a mortgage lending business. “Many of our member firms are structured as pass-throughs, and we would request more explicit clarification that mortgage banking companies organized as such are excluded from this definition,” the letter said.

The bill is scheduled for markup in the committee this week.