A showdown is set in Congress over whether to include the cost of acquiring purchased mortgage servicing rights in legislation that would set a 14-year amortization period for intangibles.
The House Ways and Means Committee last week retained coverage of PMSRs in its version of the intangibles legislation, while the Senate Finance Committee the week before had excluded them. A comprehensive tax bill (H.R. 11) is scheduled to be debated by the House this week.
Rep. Jim McDermott, D-Wash., moved to exclude PMSRs during a Ways and Means markup June 24. But committee chairman Dan Rostenkowski, D-111., persuaded McDermott to drop his amendment by assuring him that the issue would be faced when a Senate-House conference is ultimately held.
Senate Finance Committee Chairman Lloyd Bentsen, D-Texas, who was once in the business of trading PMSRs, insists that they have a life far shorter than either the 14-year amortization period set by the Rostenkowski legislation or the 16-year period contained in the Finance Committee bill.
Owners of mortgage servicing rights contend that their products are traded on the open market and that a contract typically lasts seven to 10 years. Rostenkowski doesn't dispute this, but insisted on retaining PMSRs in his bill to keep it revenue neutral.
Mortgage services argue that if the longer amortization period is set for PMSRs, it will result in higher points being charged to borrowers. Such points are immediately deductible from borrowers' gross income, thus draining revenue that would have been gained from the longer amortization period.
The staff of the Joint Committee on Taxation has estimated that inclusion of PMSRs would raise $1 billion over a five-year period, but mortgage servicers consider that an absurd figure. As a means of paying for exclusion of PMSRs, the Finance Committee bill contains a provision requiring that taxpayer identification numbers of parties involved in seller-financed mortgage transactions be reported to the IRS. It is estimated to raise about $500 million over a five-year period.