Housing Sting Lessened in Tax Bill for Credit Unions
The Republican tax overhaul will slash deductions for fewer homeowners than the version proposed nearly two months ago, but those affected are three times more likely to be living in counties that voted against Donald Trump.
On average, the impact on credit unions will be small, affecting less than 1% of loans and 6% of value. The new cap would have applied to the 4,293 mortgages originated last year between $750,000 and $1 million, and 2,480 loans over $1 million, according to Home Mortgage Disclosure Act (HMDA) data.
Loans in the $750,000-to-$1 million range and those $1 million or more each generated $3.8 billion in originations. The average profiles for loans by size group were:
- For loans over $1 million: The average loan was $1.2 million to households earning $370,000.
- For loans $750,000 to $1 million, the average loan was $846,000 to households earning $263,000.
- For loans under $750,000, the average loan was $202,923 to households earning $99,460.
New data from ATTOM Data Solutions shows the impact remains highest in counties with high home prices, which tend to be more affluent urban areas, and tend to vote Democratic.
“It’s still overwhelmingly ‘Blue’ counties,” said Daren Blomquist, senior vice president of the real estate data analytics company based in Irvine, Calif.
Under the new plan, the mortgage interest deduction will be lowered for 3.9% of homebuyers nationwide, or roughly 100,000 borrowers each year. This is down from 9.8% of the market impacted under the earlier proposal to lower the cap to $500,000.
Deductions for state and local taxes will stop after the first $10,000 in tax expense, lowering the deduction for about 4.1 million households paying property taxes, or 4.4% of U.S. homeowners.
But comparing ATTOM’s data for 2017 originations and taxes with county-level voting results shows the impact of the mortgage interest deduction reduction is as politically divided as the nation.
Mortgages over $750,000 accounted for 1.7% of originations so far this year in counties that voted for President Donald Trump in November 2016, and 5.4% of originations in counties that voted for Hillary Clinton.
The 10 credit unions generating the most mortgages over $750,000 last year accounted for more than a third of the number and value of all credit union mortgages in that range.
Nine were in the Washington, D.C., New York, Los Angeles and San Francisco metro areas, where high home prices and Democrats prevail. The exception was Lake Michigan Credit Union ($5.1 billion in assets, 313,445 members), based in Grand Rapids, Mich., the seat of Kent County, where Trump garnered 48% of the vote compared with Clinton's 45%.
Bethpage Federal Credit Union ($7.7 billion in assets, 346,981 members) was the third-largest generator of $750,000-plus mortgages last year. The 302 loans the Long Island credit union originated accounted for 8.1% of its total number of originations and 30% of total value.
Lawrence Jones, Bethpage FCU’s senior vice president of lending, said the $10,000 cap on state and local tax deductions is more likely to have a bigger impact on Long Island than the mortgage cap, potentially lowering property values.
Nationally, ATTOM’s data shows this provision affects 3.2 million homeowners, or 6.8% of them, in counties that voted for Clinton, compared with 826,000, or 1.9%, in counties that voted for Trump.
A typical Long Island homeowner can spend $20,000 on those taxes, so their benefit will be cut in half, Jones said.
“New York is one of the higher income tax states, and Long Island has very high real estate taxes,” he said. “It has the potential to have an impact on the local real estate market.”
Greg Brown, chief lending officer at Sacramento, Calif.-based Golden 1 Credit Union ($11.3 billion in assets, 902,074 members), said the new taxes might cool price appreciation in the hottest housing markets.
People who have large mortgages affected by the change will shift cash to pay down mortgages, borrow less on their homes and shift
“There will be a lot of that balancing happening,” he said. “If it stems the appreciation of real estate a little bit, that’s not necessarily a bad thing. You don’t want those valuations skyrocketing the way they did, causing a false valuation.”