Mortgage Lender Tax Loophole to Close: New Law Details

Washington state Governor Jay Inslee signed House Bill 2089 into law on Monday, redirecting revenue previously allocated as a tax break for large mortgage lenders toward wildfire prevention and response efforts.

The legislation narrows a tax deduction initially created in 2021 to benefit community banks, but which, according to the bill’s findings and statements from Representative Shaun Scott, primarily benefited larger, “placeless institutions” such as Rocket Mortgage. Starting July 1, mortgage lenders issuing $10 billion or more in mortgages annually will no longer qualify for the tax break.

Representative Scott, a Democrat from Seattle, described the measure as closing a “tax loophole,” and emphasized the need to bolster funding for wildfire mitigation. The bill is expected to generate additional revenue dedicated to forest health initiatives, community fire preparedness programs, and workforce development for firefighters.

The move comes after a significant reduction in wildfire prevention funding at the close of the 2025 legislative session, which prompted concerns within the Department of Natural Resources about potential staff cuts and the elimination of community grants. Commissioner of Lands Dave Upthegrove had previously urged lawmakers to allocate $60 million from the state’s cap-and-trade auctions to wildfire mitigation, a request that was ultimately met in this year’s budget alongside the revenue generated by House Bill 2089.

Scott argued during legislative debate that large online mortgage lenders were inappropriately benefiting from the tax break. The Department of Revenue’s analysis, cited in the bill, supported this claim, indicating that the intended beneficiaries – smaller, community-focused banks – were not the primary recipients of the deduction.