The Senate Finance Committee last week excluded the cost of acquiring purchased mortgage servicing rights from a bill (H.R 3040) that would establish a 16-year amortization period for many intangible costs. including the cost of acquiring goodwill. While the exclusion does not apply to mortgage servicing rights that are acquired through purchase of an institution, such as a thrift, the committee action was extremely pleasing to owners of mortgage servicing rights who actively trade them on the market.
It represents a victory after several defeats on the House side, where the situation is in flux Rep. Dan Rostenkowski, D-III., chairman of the House Ways and Means Committee, is the chief sponsor of a bill (H.R. 3035) would establish a 14-year amortization period for intangibles, including the cost of acquiring PMSRs.
Owners of mortgage servicing rights contend that their products are traded on the open market and a contract typically lasts seven to 10 years. Rostenkowski doesn't dispute this, but insisted on covering PMSRs in his bill as a means of keeping it revenue neutral.
The staff of the Joint Committee on Taxation estimated that stretching out the amortization to 14 years in the case of PMSRs would raise at least $1 billion in the next five years, a figure mortgage servicers considered absurd. At one point, Rostenkowski told the Mortgage Bankers Association he'd leave PMSRs out if they could suggest ways to make up the revenue.
One MBA proposal - a requirement that taxpayer identification numbers of parties involved in seller-financed mortgage transaction be reported to the Internal Revenue Service - was included in the Senate Finance Committee bill.
Mortgage servicers argue that if the longer amortization period is set for the PMSRs, the net result will be an increase in points 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 Finance Committee bill includes changes from the Rostenkowski version that makes the bill more attractive to computer software purchasers and oil dealers, who could be allies of mortgage servicing owners if it came to a battle over the different versions. The Finance panel bill also includes 18-month extensions for several tax incentives, including the low-income housing tax credit and mortgage revenue bonds, which are scheduled to expire June 30.
An important turning point for PMSR owners came at a Finance Committee hearing in late April when Lloyd Bentsen, D-Texas, said he used to be in servicing business and "that PMSRs have a life of from seven to 10 years is something I know to be a fact."