The Mortgage Bankers Association (MBA)
has raised an objection to a provision in the tax bill being put forth by Senate Republicans that that significantly changes the tax code regarding mortgage servicing rights (MSRs).
The provision (Section 13221) requires that any item of income that an accrual taxpayer recognizes for accounting purposes must also be recognized for tax. The MBA argued that if such item is booked as income for the financial statement, it is also included in gross income for tax, thus creating a tax expense that must be paid in cash even if the income is not yet received in cash.
MBA added the provision would require mortgage servicers to pay tax on the MSRt when it is created, not when the cash is received as under current law. For originator that retain servicing rights, this would create a zero tax basis that results in a large tax liability. Tax payment would be due to the IRS at a time when the servicer had yet to receive cash for performing the servicing on the underlying mortgages.
"This provision would have severe, unintended consequences resulting in higher costs for borrowers and diminished access to credit, caused when servicers of all shapes and sizes are forced to exit the business because they can't, or won't, operate under this new rule," said MBA President and CEO David Stevens. "It would also negatively impact trillions of dollars of mortgage servicing rights held by small community banks, non-bank lenders, regional and large banks, and commercial and multifamily lenders. MBA calls on members of the Senate to address this provision without further delay, before the bill gets to the Senate floor." or consumers."