MBA Letter Cites Concerns over Proposed Tax Bill

The Mortgage Bankers Association, in a letter to the House Ways and Means Committee, expressed concerns that key provisions of tax reform legislation could substantially affect the ability of homeowners and the overall economy to benefit.

In the letter to Ways and Means Committee Chairman Kevin Brady, R-Texas, architect of H.R. 1, the Tax Cuts and Jobs Act, and Ranking Member Richard Neal, D-Mass., MBA President and CEO David Stevens, CMB, said the cumulative effects of proposed changes to the mortgage interest deduction, deductibility of state and local real estate taxes and the exemption for capital gains treatment when families sell their principal residence would have a negative impact on individual housing markets–and potentially the national economy.

“MBA strongly supports the goal of enacting tax reform that spurs jobs and economic growth, and the introduction of this bill is an important milestone along that road,” Stevens said. “However, we do have strong concerns about how certain provisions of the bill will impact housing and real estate markets around the country…Although H.R. 1 would provide both owners and renters with more take-home pay by lowering overall tax rates and nearly doubling the standard deduction, we believe the cumulative impact of the changes to the MID and property tax deductibility would erode homeownership incentives for too many Americans.”

Stevens said the proposed $500,000 cap on post-November 2, 2017 acquisition indebtedness for MID, elimination of deductibility of interest on home equity loans and limitations on the deductibility of state and local taxes ($10,000 cap on property taxes) will negatively impact homeowners and prospective buyers in individual housing markets around the country.

“We believe Congress should take this historic opportunity to think creatively about new homeownership incentives targeted more efficiently to low- to moderate-income borrowers–such as the proposed 12% homeownership tax credit based on qualified mortgage interest plus property tax,” Stevens said.

The letter notes the bill also makes significant changes to the portion of the tax code that allows homeowners to exclude a portion of the gains on the sale of a home. “We believe the longer hold period for the capital gains rollover will depress mobility and job flexibility for Americans contemplating a move from one housing market to another,” Stevens said. “The extended hold period will also act as a disincentive for many homeowners to move up, and for older homeowners to move down, further exacerbating the current lack of housing supply that has made it even more difficult for younger buyers to move into homeownership. We would strongly urge retention of the current law provision in this area.”

The letter notes MBA support for several aspects of the bill, including provisions that preserves business interest deductibility for real estate as well as Section 1031 like-kind exchanges for real property; and maintaining the Low-Income Housing Tax Credit, but pointed out elimination of the tax-exempt status for Private Activity Bonds (and, in effect, the 4 percent LIHTC) could have a “significant detrimental impact on the development of affordable multifamily housing, as well as on access to affordable mortgage credit. We believe provisions that would negatively impact affordable housing should be excluded from the bill,” Stevens said.

MBA also recommended language that clarifies the definition of “personal services” companies for purposes of determining businesses that would be excluded from the application of the 25% business income tax rate for pass through entities. “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,” Stevens said.

The Ways and Means Committee began mark-up of H.R. 1 yesterday and expect to continue process through at least Thursday of this week.