18 www.azbankers.org Next Steps: Prepare for aPurchaseMortgageMarket The forecasted increase in interest rates is likely to continue to put pressure on profit margins. Millennials entering peak homebuying years are expected to drive a purchase mortgage market in 2022 and beyond. Invest in Technology It’s critical to invest in technology to meaningfully connect with today’s consumers while maximizing profitability. Anticipate Growing Demand Mortgage lenders retaining servicing are well-positioned to benefit from expected increases in value. However, housing price appreciation coupled with a significant housing supply shortage are real headwinds to growth. More affordable housing is needed to meet anticipated demand. Monitor New Legislation and Regulations Continue to monitor developments in the legislative and regulatory landscape and the impact on mortgage lending. Tax Update Relevant Issues: Build Back Better Act Proposals The U.S. House of Representatives passedThe Build Back Better Act (BBBA) on Nov. 19, 2021. The bill includes numerous provisions related to health care, climate change, immigration, education, social programs, and, of course, taxes. While the bill still faces hurdles and is subject to change should it make its way through the senate, it’s important to understand the notable proposals that may impact financial services businesses and owners. Notable highlights of the House version of BBBA include: • Expansion of the 3.8% net investment income tax base to include active business income from pass-through entities • Increase in the cap on state and Tullus Miller, Partner, Financial Services Practice Continued from page 17 local tax deduction from $10,000 to $80,000 through 2031 • Permanent implementation of the limitation on excess business loss deduction for noncorporate taxpayers; the limitation under the current law is set to expire after 2026 • Changes to the international tax regime, including Global Intangible Low-Taxed Income (GILTI) tax rate increase, the requirement to calculate GILTI on a country-by-country basis, and reduction in ForeignDerived Intangible Income (FDII) deduction • 1% excise tax on the value of stock repurchases and net of new issuance; stock contributed to retirement accounts, pensions, and Employee Stock Ownership Plans (ESOP) are excluded frombeing taxed • 5% surtax on individuals with modified adjusted gross income that exceeds $10 million • Delay in the effective date for R&D expense amortization requirement over five years — versus immediate deduction — from beginning in 2022 to 2026 • Extension and expansion of green energy-related tax credits Next Steps: Monitor Developments Current proposals don’t include an increase in corporate tax rate; however, the final legislation could look different as lawmakers continue to negotiate as the bill moves through the chambers. Monitor the developments in the legislation and consider tax planning strategies as the final legislation takes effect. CECL Relevant Issues: Adoption of CECL Adoption of the Current Expected Credit Losses (CECL) model is imminent. Currently, only around 200 depository institutions have adopted it, notwithstanding the rekindled efforts to scope out smaller community institutions in Q1 2022, leaving over 9,000 to adopt the model on Jan. 1, 2023, along with thousands of other entities in the financial services sector. The readiness of institutions preparing to adopt varies greatly and covers the spectrum, from ready-to-implement to those still in the preliminary planning phases. However, it’s not all additional work and increased complexity related to adopting a new model. A current Financial Accounting Standards Board (FASB) exposure draft would eliminate troubled debt restructuring (TDR) accounting under CECL. While the proposal includes increased disclosure requirements, the simplification of the accounting and removal of TDRs may be beneficial. Next Steps: If your organization is still in the early phases, you’re not alone, but it’s important to know that remaining time wanes and waiting for a potential adoption exemption is a dangerous proposition. Not only is adoption an issue for internal timelines, but vendors are also reaching capacity in their ability to onboard new users. Prepare and Adopt CECL For institutions further along, there’s still a focus on parallel runs, finalizing documentation, controls, policies, and procedures, as well as evaluating model validation requirements. As such, all institutions should start the year with a proactive stance. We’re Here to Help For guidance in navigating challenges your organization is facing or how to implement the next steps, contact your Moss Adams professional. You can also visit our Financial Services Practice page for more articles and resources. w
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