Finding Focus: Using the Stimulus Package to Leverage Opportunity

The economic stimulus package signed into law last week could positively impact results in 2008 if credit unions act quickly to ensure members understand how they can help them maximize the tax benefits.

 
 

On February 13, President Bush signed the Economic Stimulus Act of 2008 into law.  The package of tax breaks and incentives was put together by Congressional leaders and the Administration to help spur spending by individuals and businesses.  So what impact might the plan have on credit unions and their members?

The three key areas addressed in the plan are individual income, mortgage lending and business investment.  Credit unions could see an impact in all three areas depending on their product mix.  Here are three possible impacts of the package on credit union results in 2008.

  • Higher share balances and liquidity.  Share balances and liquidity in credit unions typically peak in the March/April time frame as tax returns are filed by members.  This period could be extended in 2008 as tax rebates of up to $600 for individuals and $1,200 for married couples will begin to be distributed in May.  The amount of the rebate scales down for individuals with 2007 income exceeding $75,000 and couples over $150,000.  Social security and VA disability benefits qualify as income under the Act, so a wider range of individuals will be covered.  In addition, rebates of up to $300 per child will be distributed if they are under 17 and listed as a dependent, subject to income thresholds.

Although the package is designed to give consumers spending money, an Associated Press-Ipsos poll found that only 19 percent planned to spend the rebate check.  Thirty-two percent indicated they would invest the funds and 45 percent planned to pay down debt.  Many consumer finance columnists have already urged individuals to save, not spend, their rebate.  Credit unions may look to offer special ‘tax rebate certificates’ to capture these funds and encourage savings.

  • Increased mortgage lending activity.  The stimulus package raises the conforming loan limits for Fannie Mae and Freddie Mac by 75 percent to $729,750.  The new limit applies to mortgages originated between July 1, 2007 and December 31, 2008. It includes mortgages approved during this period but with closings at a later date.  This change will allow credit unions to free up additional liquidity by selling more to the secondary market, enabling them to continue to assist members looking for loans for both purchases and refinancing.

Credit unions have continued to pick up mortgage market share in 2007 as others pulled back.  With consumers looking for a trustworthy lender after the subprime mortgage fallout, credit unions have a real advantage.  For credit unions in areas with higher real estate values, the higher conforming loan values can be a significant boost to mortgage programs that may have been constrained by previous limits on jumbo mortgages.

  • Increased business lending activity.  The Act includes two provisions designed to increase business investment. The first provision nearly doubles the amount of tangible property that businesses can deduct, increasing it from $128,000 to $250,000.  This applies to property purchased and placed in service in 2008, with the deductible amount reduced if purchases exceed $510,000 during the year.  Qualifying property is a broad umbrella that includes newly purchased tangible property and equipment that must be used more than 50 percent for business.

The second provision allows businesses to accelerate depreciation by 50 percent in the first year on qualifying property, including leased property. This item also includes an $8,000 increase in the amount of depreciation on “luxury” vehicles purchased in 2008. The definition of “luxury” is a low threshold, covering autos with a value of at least $15,100 and trucks with a value of at least $16,100 in 2007.

Credit unions need to act quickly on the opportunities presented by the stimulus package.  Getting the word out about credit union options that can help members to benefit from the incentives will be a key to boosting 2008 results.

 

 

 

Feb. 18, 2008


Comments

 
 
 
  • It is retroactive to mortgages originated from July 1, 2007
    Jay Johnson
     
     
     
  • I think under mortgage lending activity you meant July 1, 2008 and not July 1, 2007?
    Nancy Harris
     
     
     
  • Excellent comment to include. The $729K limit is the maximum but your description of the variance between MSAs is correct.
    Jay Johnson
     
     
     
  • I think it is important to point out that the increase in the conforming loan limit will only apply to a certain number of MSAs whose aveage home price is considered high. The 40 or so that will be affected are mostly in costal areas. Furthermore, the limit will increase to 125% of average home prices but not to exceed 175% of the current limit. For example, if the Los Angeles MSA average home price is $500,000, their new limit will be $625,000 (125% of $500,000). Last, selling those loans to the secondary market will certainly have credit, pricing and delivery restrictions (i.e. LTV and FICO limits and a delivery fee). It will not be a simple as delivering a higher loan balance as conventional/conforming.
    Anonymous