Grand Ballroom IV/V/VI Marriott Hotel San Jose, CA Thursday, September 22, 2011 3:30 pm – 5:15 pm
Presiding: Barbara J. Palmer, Chair Mark Peterson, Vice-Chair Clay Sigg, Vice-Chair Mike Riley, Executive Liaison Jeannette Way, NAR Committee Representative
Staff: Matt Roberts, Federal Government Affairs Manager
I. Welcome and Opening Comments – Barbara J. Palmer
II. Reports by Committees and Task Forces
A. Transaction & Regulatory Committee – Steve Rosco, Chair 1. Property Assessed Clean Energy Lien Seniority (Please See Issue Briefing Paper) Should Property Assessed Clean Energy (PACE) liens be senior to a first mortgage?
B. Taxation & Government Finance Committee – Patricia Bouie-Hinds, Chair 1. Mortgage Debt Forgiveness (Please See Issue Briefing Paper) Should the debt forgiveness protections be extended beyond the end of next year?
2. Mortgage Interest Deduction (Please See Issue Briefing Paper) Does it make sense for C.A.R. to study the economic impacts of various MID modification proposals?
C. Housing Committee – Allen Okamoto, Chair
D. Land Use & Environmental Committee – Greg Haas, Chair
E. Distressed Properties Task Force – Colleen Badagliacco, Chair
III. Survey of the Legislative Climate
A. Member Mobilization Report – DeAnn Kerr
IV. Proposed Risk Retention Rule Update On August 1, 2011, C.A.R. commented on the proposed rule on risk retention, implementing section 941 of the Dodd-Frank Act. Section 941 requires lenders that securitize mortgage loans to retain a percentage of the risk unless the mortgage is a qualified residential mortgage (QRM) or is otherwise exempt. The proposal would have defined a QRM using excessively stringent underwriting standards that would have forced the majority of homebuyers, especially in high-cost states such as California, to pay more in spite of qualifying for a prime loan.
Proposed Definition of a QRM would:
• Require an 80% LTV, which requires a 20% down payment. • Limit the mortgage payment to 28% of gross income and 36% of all debts. • Require that the borrower is not currently 30 or more days past due on any debt obligation. • Require the borrower must not have been 60 or more days past due on any debt obligation within the preceding 24 months. • Require the borrower must not have, within the preceding 36 months, been through bankruptcy, foreclosed on, engaged in a short sale or deed-in-lieu of foreclosure, or been subject to a Federal or State judgment for collection of any unpaid debt.
V. Disposition of Fannie Mae, Freddie Mac, and FHA REO Inventory The Federal Housing Finance Agency (FHFA), the U.S. Department of the Treasury, and the Department of Housing and Urban Development (HUD) have published a Request For Information (RFI), seeking input on new options for selling single-family real estate owned (REO) properties held by Fannie Mae and Freddie Mac (GSEs), and the Federal Housing Administration (FHA).
The FHFA, Treasury and HUD are requesting input on what is essentially a proposal to expedite the disposition of the REO inventory currently on their books, as well as their expected future REOs. The RFI puts forward three different models:
• The GSEs and FHA partner with a third party to rent out a portion of their existing REO inventory. • The GSEs and FHA do a bulk sale of a portion of their REO inventory to investors (anywhere from $50 million to $1 billion in size) who would then be obligated to rent those units out. • The GSEs and FHA do a bulk sale of a portion of their REO inventory to investors with no restriction. This would mean investors could rent and/or sell as many or as little of the properties as they see fit.
The RFI is extremely vague on any details. There is no sunset date, no minimum amount of time that a property must be rented before it can be sold again, no details on what the structure of the partnerships would look like, and no numbers given on how many REOs would be put in this program and how many would continue to be listed individually with REO brokers. In fact the RFI is asking for the industry and interested parties to submit what they believe the answers to these questions should be.
The administration and many others in DC view this as an expedient opportunity to expeditiously eliminate non-performing assets through bulk sales and/or convert non-performing assets into performing ones by transforming them into rental units.
There is great pressure on the administration to take action on the issues surrounding the housing market. Issues this RFI is hoping to address include:
• Reducing the REO portfolios of the GSEs and FHA in a cost-effective manner, • Reducing average loan loss severities to the GSEs and FHA relative to individual distressed property sales, • Addressing property repair and rehabilitation needs, • Responding to economic and real estate conditions in specific geographies, • Assisting in neighborhood and home price stabilization efforts, and • Suggesting analytic approaches to determine the appropriate disposition strategy for individual properties, whether sale, rental or, in certain instances, demolition.
VI. Review & Update of C.A.R. Issues
A. Reform of the Government Sponsored Enterprises On July 6, 2011, Representatives Gary Miller (R-CA) and Carolyn McCarthy (D-NY) introduced H.R. 2413, the Secondary Market Facility for Residential Mortgage Act of 2011. The Miller and McCarthy bill is a comprehensive secondary mortgage market reform bill that espouses many of C.A.R.’s and NAR's GSE principals and recommendations. C.A.R. is supportive of this bill because it maintains a government role within the secondary mortgage market, which is required to ensure the viability of long-term mortgage financing for consumers (e.g. 30-yr fixed-rate mortgages).
In addition to H.R. 2413, California Congressman John Campbell introduced H.R. 1859, the Housing Finance Reform Act of 2011, with Democratic member Gary Peters (D-MI). HR 1859 would also comprehensively reform the mortgage finance system, but would set up multiple private companies in the marketplace with the government offering a catastrophic guarantee of their securities.
Fannie Mae and Freddie Mac (Government Sponsored Enterprises or GSE) have now been under the conservatorship of the Federal Housing Finance Agency (FHFA) since September 2008. Reforming these mortgage giants, which guarantee or own roughly 50 percent of all outstanding mortgages, is a top priority for both sides of the isle.
Besides H.R. 2413 and HR 1859 there have been many different proposed ideas, but perhaps the toughest question facing the Administration and Congress is what, if any, role should the government play in the housing finance market? The House Financial Services Leadership have introduced over a dozen smaller bills which have already begun hearings and sub-committee markups. These smaller bills stand no chance at making it to the President’s desk and are more for press headlines than anything else. It remains unclear when the Senate will attempt to address the GSE reform issue; however, their delay seems to indicate a good possibility the issue may wait till after the 2012 elections.
B. Real Estate Tax Issues Members of Congress and the White House are facing growing pressure from constituents, Wall Street, and foreign governments to put the nation’s financial house in order. To date the nation’s national debt is approaching $15 trillion, the 2010 deficit was $1.3 trillion, and while 2011 is not yet over this year’s deficit is expected to be greater than that.
Past attempts by D.C. to address this issue include a Debt Reduction Commission proposal, the Senate Gang of Six proposal, the Biden Group, the House Budget Committee Chairman Paul Ryan’s proposal, the Obama Fiscal Year 2012 budget proposal, the GOP proposed Cut, Cap and Balance proposal, the Reid plan, the McConnell plan, and now the creation of the “Super Committee.” This committee was created as part of the debt ceiling increase legislation the President signed in early August.
While a number of these proposals have proposed changes to tax benefits for property owners, including the MID, to date Congress has yet to pass anything that significantly increases taxes on any sector. However, it is inevitable that this will change in the coming years.
Looking forward there are dates that Congress will have to take action by that will bring the issue of revenue into the discussion.
• The government’s fiscal year will begin on October 1, 2011. Congress must pass a spending bill prior to this date or the government will shut down. Congress will not pass all of its appropriation bills so they will pass a short term Continuing Resolution to temporarily fund the government for a few months which will give them more time to finalize a budget. They are also likely to wait and see what is produced by the Super Committee. • According to the debt ceiling increase law the Super Committee has until November 23 to draft a plan that will save the government $1.5 trillion minimum. Congress then has until December 23 to pass the plan (which will only allow for an up or down vote, no amendments). Should Congress fail to meet these requirements, then an automatic $1.2 trillion spending cut would kick in with half of it going towards defense spending and half going towards non-defense spending. The Super Committee will be allowed to raise revenue if they want.
While no one idea has gained significant traction to even begin the process of moving through Congress, some proposals that have gained some traction in the past include: • A simplification of the tax code, if not a full reform of it. The goal would be to ultimately lower tax rates for the current income tax brackets. While this is widely supported, it is unclear what deductions and credits would be eliminated to cover the cost of reducing the rates. • Most politicians support leaving the MID alone, or at least maintain it in some form. This means there are many in Congress who are open to the idea of limiting the MID’s benefit. Targets include second homes, home equity loans, higher earners, and the revamping of the deduction into a tax credit. • Allowing the bush tax rates to expire, including allowing the current capital gains rate of 15 percent to increase to 20 percent.
C. Private Transfer Fee The Federal Housing Finance Agency (FHFA) has issued a proposed rule intended to limit the usage of private transfer fees (PTF). This is a follow up to their proposed guideline stating “the Enterprises (Fannie Mae and Freddie Mac) should not purchase or invest in mortgages encumbered by private transfer fee covenants or securities backed by private transfer fee revenue, as such investments would be unsafe and unsound practices and contrary to the public missions of the Enterprises and the Banks.” However, unlike the proposed guidelines, the proposed rule creates many exceptions that would make the final rule ineffective in California.
The proposal creates exceptions for homeowners associations (HOA) and non-profit entities who utilize the money to provide a “direct benefit” to the encumbered property. The FHFA has defined “direct benefit” as:
Direct benefit means that the proceeds of a private transfer fee are used exclusively to support maintenance and improvements to encumbered properties as well as cultural, educational, charitable, recreational, environmental, conservation or other similar activities that benefit exclusively the real property encumbered by the private transfer fee covenants. Such benefit must flow to the encumbered property or the community comprising the encumbered properties and their common areas or to adjacent or contiguous property. A private transfer fee covenant will be deemed to provide a direct benefit when members of the general public may use the facilities funded by the transfer fees in the burdened community and adjacent or contiguous property only upon payment of a fee, except that de minimis usage may be provided free of charge for use by a charitable or other not-for-profit group.
C.A.R. is strongly opposed to the proposed rule and has met personally with the FHFA and submitted a comment letter expressing our concern, opposition and recommended changes to ensure the implementation of a prohibition on PTFs is done in a manner that benefits California’s housing market.
To date the FHFA has not yet published its final rule on this. (Comment Letter)
D. Loan Limits REALTORS® have successfully extended the current FHA and GSE loan limits on an annual basis since 2008. Congress again extended those loan limits during the last session of Congress in 2010. However, unlike prior years where the loan limits were extended for the calendar year, this time Congress only extended the loan limits for the Fiscal Year. This means the current loan limits are set to expire at the end of September 2011.
Due to declining median home prices and an expanding congressional membership who support an expedient shrinking of the government’s involvement in the nation’s housing market, it is highly unlikely the loan limits will be extended for another year. This is in spite of the damage such a reduction will cause to California’s and the nation’s housing market.
Below are links to the new loan limits on October 1, 2011.
E. Short Sales Short sales continue to be a large share of the California housing market. While efforts have been made to make the short sale transaction easier, many of our members continue to have difficulty with this type of transaction. The biggest hurdles to successful short sale transactions continue to be different requirements from lender to lender, length of time for the short sale process, lack of transparency and poor escalation mechanisms for troubled transactions.
F. Insurance Issues After the hurricanes of 2005, the National Flood Insurance Program (NFIP) was left insolvent and Congress had to take action by appropriating additional funds to keep the program running. Congress is now seeking to reform the NFIP in order to avoid insolvency should another tumultuous hurricane season occur. The current funding authorization expires on September 30, 2011. Therefore Congress must either pass an NFIP reform bill prior to this date or temporarily extend funding again.
Congresswoman Judy Biggert (R-IL) has introduced HR 1309, the Flood Insurance Reform Act of 2011. The proposed legislation would: • Reauthorize the NFIP through September 30 2016, • Raises the maximum the premium may annually increase from 10% to 20% • Phases-in the full actuarial rate by 20% each year, beginning a year after enactment, for older properties, including non-residential; non-primary residences; primary residences that sell; are substantially damaged or improved; or have multiple claims. For newly mapped properties, the phase-in would have same start date but would increase by 50% in the initial year and 20% each year thereafter. • Indexes and adds options for business interruption and residential loss of use. • Sets minimum deductibles and allows for quarterly residential rate payments. • Directs FEMA and GAO to do a study and report on the best ways to privatize the NFIP
The House has passed HR 1309; which now awaits Senate action. It is highly unlikely the Senate will address this issue prior to the October 1 deadline, which will force Congress to once again pass a temporary funding bill to maintain the program.
G. Mortgage Assistance Relief Services Rule (MARS) On July 15, 2011, The FTC announced that it will forbear from enforcing most provisions of its MARS Rule against real estate professionals who assist consumers in obtaining short sales from their lenders or servicers.
This forbearance of enforcement will only apply to real estate brokers (and real estate agents under their direction and control) who are:
1. Licensed and maintain good standing pursuant to any applicable state law requirements; 2. In compliance with state laws governing the practices of real estate professionals; and 3. Assisting or attempting to assist a consumer in negotiating, obtaining or arranging a short sale of a dwelling in the course of securing the sale of the consumer’s home.
The FTC will still enforce the Rule’s prohibition against misrepresentations made by a real estate professional while assisting a consumer in negotiating or obtaining a short sale.