Only a slight change in the pricing of purchased mortgage servicing rights will likely result from the months of deliberations in Congress over the appropriate amortization period for PMSRs in budget reconciliation legislation.
Industry officials are voicing a deep sigh of relief over the tentative decision by House and Senate conferees to provide a special carve-out for PMSR amortization in legislation establishing a uniform amortization period for identifiable intangibles.
However, they caution that the agreement on PMSRs -- in effect, accepting the Senate language on the issue -- is contingent on budget legislation conferees agreeing on broader tax and spending issues that do not require them to wring more cash out of such technical issues as identifiable intangibles.
The tentative agreement was reached Tuesday night, July 27, by conferees. The conferees were hoping to finish work on the full package by the weekend; congressional Democratic leadership has tentatively scheduled a vote on the entire budget reconciliation package for Wednesday, Aug. 4, in the House and Friday, Aug. 6, in the Senate. Congress is scheduled to recess for the remainder of the month after completing work on the budget package.
The tentative deal calls for a nine-year amortization period for PMSRs, only slighter higher than the current seven-year period considered the industry average. The conferees also agreed on a uniform 15-year amortization period for other identifiable intangibles. Conferees estimate that the overall pact on identifiable intangibles will yield between $2 billion and $5 billion in revenues over five years. The agreement will "cost' the conferees $800 million in revenue over five years that will be lost through the special carve-out for PMSRs.
Michael Ferrell, chief lobbyist for the Mortgage Bankers Association, said the new deal effectively represents the difference between accelerated amortization (the accounting system used now by mortgage bankers in depreciating their PMSRs) and straight-line amortization (the method the budget deal will likely require mortgage bankers to use).
"There will be a slight change in the pricing of PMSR, both when it is sold in the secondary market and in pricing mortgages to consumers," Ferrell said. But, overall, this will work to the benefit of consumers and the housing market as a whole."
The final deal -- if it withstands the furious last-minute maneuvering and rhetoric that always accompanies congressional action on important issues -- represents a substantive victory for the mortgage banking industry over the provision passed by the House in May. That provision called for a uniform 14-year amortization period for all identifiable intangibles, which would have effectively almost doubled the amortization period for PMSRs. The Senate carved out the nine-year special exception for PMSRs that has now apparently been accepted by House conferees.
