With the November elections set to impact future policies and laws affecting real estate and housing finance professionals, one of the biggest trade groups advocating mortgage lenders, the Mortgage Bankers Association, is heading for a very busy stretch.
The Tax Cuts and Jobs Act, a major achievement for former president Trump in 2017, is set to lapse in 2025. What happens with that going forward will determine the future of both housing and business tax incentives, said the MBA's Senior Vice President for Legislative and Political Affairs, Bill Killmer.
"We're going to be strongly playing defense for real estate and business provisions to make sure that those aren't utilized as 'pay-fors'," he said, referring to policies that could be chopped in budget-balancing decisions.
Bill Killmer, senior vice president for legislative and political affairs.
Courtesy of Mortgage Bankers Association
The MBA in April signed on to a letter with 22 other real estate trade groups, backing measures to address production and affordability while urging rejection of policies tacking on taxes to housing providers.
A trigger leads bill meanwhile carries bipartisan support but has yet to reach the president's desk, while a law curbing investor purchases of single-family homes appears less likely to develop. Killmer spoke to National Mortgage News about the policies of interest to the mortgage industry, up for discussion for an incoming Congress and Oval Office.
This interview has been edited and condensed.
Is there any particular tax bill that the trade groups are prioritizing?
Whether it's the need to produce more affordable rental units or more affordable single-family housing, policies that are geared towards increasing production would be the highest priorities.
On the other side, it's about trying to condition the complex ecosystem that impacts how sticks go into the ground, whether it's for multifamily or single-family development. There's a ton of overlap at the local, state and federal level, so a lot of these congressional items detailed in that letter are geared towards helping condition states and localities to incentivize policies that will help produce more housing.
The MBA and our coalition partners are strong believers in the LIHTC (Low Income Housing Tax Credit) and Section 42 (low-income housing tax credit) and ways to expand and improve that. There's the Neighborhood Homes Investment Act for construction in low-to-moderate income Census tracts. Essentially it's a single-family equivalent to the LIHTC. We're strong supporters of that.
And then this whole notion incentivizing conversions of underutilized commercial properties. It's tough, it really does demand public-private partnerships to try and make that happen. But some level of subsidy is needed.
Is there any particular tax proposal that would be especially harmful to the housing finance industry?
Expiring TCJA provisions. Our focus will be making sure lawmakers maintain appropriate consumer-facing and business incentives for investments in real estate and housing production.
Extending the expiring TCJA provisions will cost $3.5 trillion to $4 trillion over 10 years. Whoever's in charge will make a big difference in that debate.
If you've got full Democratic control, I think they double down on Inflation Reduction Act provisions to try to expand those. If you're going to do that, presuming a Democratic Congress and Biden in the White House, you've got to pay for it. That's where we're going to be strongly playing defense for real estate and business provisions to make sure that those aren't utilized as pay-fors, without a full analysis of the impacts if you curtail or remove them.
That's a whole panoply. Like Section 1031 exchanges, capital gains treatment for sale of a single-family residence for both either single or married households. That was in play very much in 2017 but they left it intact.
We're probably less focused on the mortgage interest deduction, SALT (State and Local Tax deductions), but there's implications. If they were to let the MID expire, and there's a cap on SALT, there's big implications in high-tax states that have been unsuccessfully lobbying to get that cap relaxed. If you've got more of a blue state prerogative in the White House and majority in Congress, I think SALT is very much in play. If Republicans are in control, then not as much.
It's really hard to gauge the degree of difficulty these days with a split in Congress and President Biden. You had 357 votes for a compromise on the child tax credit, expanding and improving in the LIHTC was part of that mix, and yet you can't get the Senate to take it up because Republicans are waiting to see if they'll be in control for 2025.
The other thing that's in play here is the C corps tax rate that got lowered to 21%. Democrats will absolutely want to raise the corporate rate as one of the pay-fors. That's likely not the inclination if you've got Trump in the White House again, but there's always a set of trade-offs in these kinds of debates.
The industry trades have many members that are either S Corps or LLCs. The trade-off for small business in 2017, was when the corporate rate was lowered for C corps, was the creation of this section 199A small business tax deduction against a newly-defined qualified business income, that you could deduct 20% of that qualified business income and you would get relief comparable to the relief that C Corps got when their rate was lowered.
There's big implications if that goes away because then if you're an S corp, you're going to be taxed at the individual rate and that's a huge tax jump.
Do trigger lead bills have momentum to get passed, regardless of the next administration?
The short answer is yes. What's really shifted in that debate, and why the MBA's jumped in with both feet, where that used to be more of a mortgage broker-specific concern calling for a blanket ban, it's the change in technology.
The anecdotes, and we had hundreds of them, are kind of astonishing about how fast these calls come in as soon as somebody has their credit pulled from making an application. It used to be this was an issue that became more prominent when origination volume declined and competition got more fierce for individual applications. The problem is just more widespread.
It's a really diverse coalition of groups that are supportive of this because they realize the consumer harm. We've got a diverse Senate coalition. We've got (Democratic Senator) Elizabeth Warren and (Republican Senator) Tommy Tuberville both supportive of that bill, so there really is a strong basis.
The first point is to get the bipartisan House Bill marked up in the House Financial Services Committee. The coalition is in conversations with the chairman's staff regarding that. I'm encouraged that we can potentially get this in one or both chambers this year. If we don't, it's something the coalition, the MBA and our industry will stay very committed to.
It's really the industry deciding that we want to police ourselves in the Hunger Games.
Has the industry has voiced any public support or concern, maybe trade groups on bills regarding investor home purchases?
I think most of us are analytical about this. If you look at the data nationally, it's not as widespread as some of the concerns that are voiced in the legislative proposals might indicate that it is. But that's not to say that in certain markets the investor activity has not been profound and impactful.
It's real. We just don't know that it's as widespread and nationwide a problem. This is another one of these things that points to 2025 as a really important point, because this is going to be an attempt to utilize the tax code to curtail benefits for the investors. You don't want to crowd out mom and pop. We just want to be persuaded that the data is really showing that it's just as persistent a problem as some are saying.
A recent Arizent survey showed mortgage professionals were less concerned about specific policies, such as cybersecurity. Is the industry concerned about cybersecurity?
I think the industry is deeply concerned. At one of our recent conferences we had confidential conversations with some of the mortgage-impacted companies, talking about what their experience is. They'd love to see a coordinated national security effort, but they're not really looking to Congress, certainly less so than the executive branch.
Mortgage professionals in our survey also indicated less interest in climate change policies.
I think the industry writ large is concerned. There's two prongs: One is on the commercial side because of the industrial overlay with ESG debate, hoping there's an appropriate balance in what the SEC would move forward with.
This bleeds into something that's a bonafide crisis, the cost and availability of property insurance. That's becoming a much more existential issue. That's not a problem that's going to get solved in Washington, because that's a state-regulated industry. But there's a lot of creative solutions and dialogue that's taken place on that.
Would a Trump or Biden administration be better for the mortgage industry?
I'm gonna give you the answer that I've been giving for the last two or three decades, which is, it's a trade off and there's a political continuum.
To answer your question as Biden versus Trump and who's better, on the Republican side you're gonna get more of a call for regulatory clarity and more transparency, and less regulation by enforcement, which we've seen in both the Obama and Biden administrations.
The chore for groups like the MBA and other housing groups is, how do you build coalitions both with your allies in the Congress, and then in really key agency slots: FHFA, HUD, CFPB Treasury, and the White House folks devoted to economic issues including housing?
That's become increasingly difficult with these really historically narrow majorities in Congress, which has made the administrative side of this so much more important in the last few years.
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