CHLA Letter lays out arguments in Detailed Comment Letter on Proposed Rule
Contact: Scott Olson For Immediate Release
571-527-2601 September 4, 2018
The Community Home Lenders Association (CHLA) today submitted a detailed comment letter [ENCLOSED] to the IRS, seeking clarification that independent mortgage bankers (IMBs) are eligible for the 20% small business passthrough tax deduction from last year’s tax bill – including clarifying that customary IMB activities such as originating and selling off mortgage loans are not “financial services” within the context of the proposed rule.
CHLA sent the letter as the only national association that exclusively represents independent mortgage bankers (IMBs).
“CHLA appreciates the language in the proposed rule that explicitly excludes ‘the making of loans’ from the definition of ‘Financial Services.’ This is important because the primary activity of a mortgage banker is making mortgage loans, and whether an activity is a Financial Service is a critical factor in determining whether a firm engaging in such activities is eligible for the 20 percent pass-through deduction.,” the CHLA letter states.
“However, further clarification or guidance is needed to ensure that Independent Mortgage Bankers (IMBs) are fully and transparently eligible for pass-through treatment, consistent with statutory language and intent.”
CHLA’s letter details a number of legal arguments in favor of this position:
* The proposed rule makes banks eligible for pass-through treatment – so denying such treatment for IMBs would be inconsistent, competitively unfair, and harmful to consumers.
* The proposed rule states that “making a loan” is not a “financial service” (a key criteria that would otherwise be ineligible for pass-through treatment) – and making (originating) a loan is the essence of what IMBs do.
* While IMBs’ sale of mortgage loans (e.g., through GNMA issuance) may involve issuance of securities, such activity should not be classified as a “financial service” because the IMB neither performs securities activities nor does it involve the “performance of services” for third parties.
* IMBs do not fall into the enumerated professions that are excluded from passthrough treatment.
* The principal asset of an IMB is NOT the reputation or skill of its employees or owners – but rather a firm’s tangible assets such as state licenses to originate loans; its technology, underwriting systems, and product offerings; and its relationships with a wide range of market participants.
The CHLA letter also explained that IMB pass-through treatment is consistent with statutory goals, since IMB mortgage loans create significant economy activity, IMBs are true small businesses, and IMBs engage in extensive hiring to meet labor intensive activities of mortgage loan origination, underwriting and servicing.