Mortgage bankers don't like their prospects for getting the Senate to stop legislation establishing a 14-year write-off period for purchased mortgage servicing rights.
Officials say they expect a vote on the package in the Senate Finance Committee by mid-June, giving them--in view of a 10-day recess that ends June 7--precious little time to buttonhole members. Moreover, members of the Senate Finance Committee being lobbied by the industry are focusing on the large items, not such small potatoes as a carve-out for the money that people pay for the right to service mortgage payments.
Banking interests were conceding a loss in the House even before that chamber voted last week on the full tax package. That measure includes PMSRs in language establishing a uniform 14-year write-off period for identifiable intangibles.
"It will be difficult to get a carveout," said James O'Connor, tax counsel for the Savings and Community Banker of America. One of the industry's problems is that the Congress is using Congressional Budget Office and Internal Revenue Service projections that he said estimate a $1 billion benefit from PMSRs over five years. "We will have to come up with an alternative to those finds and it will be difficult," O'Connor said.
But Warren Lasko, executive vice president of the Mortgage Bankers Association, said he understood that Congress hoped to generate $1.5 billion over five years from a 14-year PMSR amortization schedule. No matter, Lasko said last week that he can't see the government collecting more than a third of that $1.5 billion.
The government's estimate, he said, "is clearly based on a faulty understanding of the mortgage servicing business," one in which PMSRs typically have a life of seven to 10 years.
Mortgage bankers say the damage to their industry will be enormous. Lasko predicted the change would force up mortgage rates as much as an eighth of a percentage point. The PMSR measure "in effect is a backdoor tax on home buyers," he said.
In making that case to the Senate, however, the mortgage bankers will be in the unenviable position of having to push PMSRs out of the bill rather than merely trying to block their inclusion. That's because Finance Committee Chairman Daniel Patrick Moynihan, D-N.Y., will use the House-passed version of the tax provisions as the "chairman's mark," or starting point, for changes in the Senate version.
At the same time, the banking industry is split over the issue. For bankers who don't have large mortgage units, the certainty of a 14-year write-off period with little statistical and other justification needed for items such as core deposits and purchased credit card receivables can be seen as a blessing.
"Many institutions are buying branches and deposits and are focusing on being able to budget for these acquisitions with a certain amortization period available," O'Connor said. "Many institutions don't want to risk losing that certainty, even if it means accepting a 14-year amortization period."
Moreover, he said the great victory of the Newark Morning News decision in which the Supreme Court backed business against the IRS on the identifiable intangibles issue "amounts to pressure on the IRS to agree with taxpayers on a methodology for making valuation determinations." In that case, the high court held that identifiable intangibles can be amortized over shorter periods if specific tests are met.
Lasko, of course, views things differently.
A stretched-out PMSR schedule will reduce the value of the rights on mortgage bankers' books by 6%. he said.
He said Sen. David Boren, D-Okla., has been on the MBA's side in the past but appears to be too occupied with the proposed energy tax to care much about PMSRs. Lloyd Bentsen was a great help when he was a senator but appears to have different priorities now that he's President Clinton's Treasury secretary. Lasko said.
Mortgage bankers have been down this road before. In 1992, Congress passed legislation containing a 14-year PMSR amortization schedule but then-President Bush vetoed it because it also called for some tax hikes.