Congress Reaches Agreement on Federal Budget, Tax Extenders Package

This morning, House Speaker Paul Ryan (R-WI), announced that bipartisan deals had been reached on a bill to extend certain tax breaks as well as to fund the government.

H.R. 2029, the Consolidated Appropriations Act of 2016 and the Protecting Americans from Tax Hikes Act of 2015 contains a few provisions important to the structured finance industry:

  1. Eminent Domain – Contains an SFIG supported provision that prevents the Federal Housing Administration, Government National Mortgage Administration, or Department of Housing and Urban Development from facilitating the use of eminent domain in order to seize securitized mortgage loans for the purposes of modification.
  2. Jumpstart GSE Reform – the bill (1) explicitly prohibits the sale, transfer, liquidation, relinquishment, or divestment of the Department of Treasury’s senior preferred stock holdings in the GSEs without legislative action which sunsets on January 1, 2018.  This may serve as a lever to push legislative action on full GSE reform during the next Congress.
  3. Making Home Affordable (“MHA”) – Ends new modifications under the MHA program as of December 31, 2016.
  4. Mortgage Insurance Premiums (“MIPs’) – MIPs can be deducted for taxpayers with up to $110,000 in adjusted gross income through 2016.
  5. Mortgage Servicing Assets Capital Review (“MSAs”) – requires the prudential regulators to conduct a joint study to determine the proper capital requirements for MSA’s.
  6. Real Estate -
    1. Increases the rate of withholding tax on disposition of U.S. real property interests from 10% to 15% that doesn’t apply to the sales of personal residences where $1M or less is realized; and
    2. Interests in Regulated Investment Companies (“RICs”) and Real Estate Investment Trusts (“REITs”) are not excluded from the definition of real property interests even under a cleansing rule
  7. Solar Investment Tax Credit (“SITC”) – The SITC will be extended to 2019 at the current 30% level, 26% in 2020, 22% in 2021 and then is set to 10% permanently thereafter.
  8. Student Loan Servicing - Provides $1.6 billion in funding for the Student Aid Administration, an $155 million increase over the previous year’s funding. However, the $155 million is required to be allocated based on the quality of servicing and borrower outcomes rather than by the current formula.

The text and summary of the tax extenders provisions to H.R. 2029 can be found here and here.  The text of the government funding provisions of H.R. 2029 can be found here.

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