The New Tax Bill & The Home Lending Industry | Changes to Mortgage Interest Deduction

After the Trump Administration’s passage of what has been called a ‘sweeping’ new tax bill on December 22, the mortgage industry has had time to digest changes and react to their effects. Upon release of initial drafts of the bill, several key industry advocacy groups voiced concern for the consequences of many of the bill’s proposed provisions.

Citing Section 13221 which would require mortgage servicing rights to be recognized for tax purposes, the Mortgage Bankers Association (MBA) expressed concern saying the bill would “substantially disrupt the existing mortgage market, with the result being diminished competition as independent mortgage banks and community banks stop servicing and potentially leave the market. More sellers, fewer buyers and tax obligations mismatched with cash flows will depress pricing for MSRs market-wide, likely leading to higher mortgage rates for consumers.” Thankfully, after extensive lobbying, this section was amended to exclude MSRs.

The major change that will influence home buyers, and home lenders, is a change in the mortgage interest deduction limit. According to Cornerstone Home Lending, under the new tax bill “mortgage interest deductions will be reduced by the IRS” however this will “have very little impact on most homeowners in non-high cost or high-tax states.”

The National Association of Realtors (NAR) summarized the mortgage interest deduction changes as follows:
“The final bill reduces the limit on deductible mortgage debt to $750,000 for new loans taken out after 12/14/17. The final bill repeals the deduction for interest paid on home equity debt through 12/31/25. Interest is still deductible on home equity loans (or second mortgages) if the proceeds are used to substantially improve the residence. Interest remains deductible on second homes, but subject to the $1 million / $750,000 limits.”

Janus AMC is closely following tax reform updates and will relay new developments via our blog. Check back soon for the latest regarding Trump’s tax bill.

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