8:00 a.m. - 11:30 a.m. Thursday September 22, 2011 San Jose Convention Center
Mission Statement: The Committee is a Policy committee. Its mission is to develop C.A.R.'s overall policy agenda as it relates to the practice of real estate. It has original jurisdiction to evaluate transactional issues, legislation and regulation in the following issue areas:
Licensure Liability and Risk Management Real Estate Finance Transactional
Each issue area is managed during the Committee's meeting by an Issue Chair, under the direction of a committee Chair and committee Vice-Chair. The Committee has jurisdiction over issues that are potentially real estate related that do not fall into another committee's jurisdiction. The Committee reports to the Legislative or Federal level of government committee(s), as appropriate, and to the Executive Committee and the Board of Directors.
Presiding: Steve Rosco, Chair Tim Brigham, Vice Chair
Issues Chairs: Roseanne Howard, Risk Management and Liability Barbara Delgleize, Transaction Virginia Butler, Real Estate Finance Dennis Pantano, License and Regulatory
Liaisons: Ruth Hayles, Executive Committee Jeff Barnett, NAR representative
I. Introductions and Welcome - Steve Rosco, Chair
II. Legislative Update A. Overview of the C.A.R. policy formation process B. Legislature and state budget developments C. Member mobilization - DeAnn Kerr
III. Sponsored Legislation A. SB 458 (Corbett) - Anti-Deficiency C.A.R .initially sponsored SB 458 to revisit the “anti-deficiency” issue of SB 1178 (Corbett, 2010), which was vetoed by Governor Schwarzenegger. As introduced SB 458 would have extended existing anti-deficiency protections to cover the refinance of purchase money mortgages, and new debt (cash out) incurred to acquire, construct or improve the home. C.A.R. and the lender groups reached an agreement to amend SB 458 to instead expand the provisions of existing law (SB 931 of 2010) which became effective this year. SB 931 requires a first mortgage holder to accept an agreed upon short sale payment as
full payment for the outstanding balance of the loan, but does not apply to junior lien holders. SB 458 extends the protections of SB 931 to junior liens effectively providing that any lender that agrees to a short sale must accept the agreed upon short sale payment as full payment of the outstanding balance of all loans. In addition, this measure clarifies that this rule applies only to residences. Amendments were later added to SB 458 which would prohibit a mortgage holder from requiring the short seller to provide funds, in addition to the sale proceeds from the property, in exchange for the note holders' written consent to a short sale. Status: Signed by the Governor on July 15 (Chapter 82, 2011 Statutes)
B. SB 510 (Correa) - DRE manager proposal Under current law, the Department of Real Estate (DRE) is only permitted to hold the broker of record accountable for failure to supervise, even if the broker of record has delegated supervisorial responsibility to an office manager. C.A.R. is sponsoring SB 510 which would establish a designated office manager requirement for those licensees managing real estate offices. Under this legislation, a broker of record would be permitted to appoint an eligible (2 years of experience) real estate broker or salesperson to supervise branch office operations, provided that a contract detailing the duties and responsibilities to be performed by the office manager is in writing and a notice is delivered to DRE. While principal brokers would remain accountable for their supervisorial responsibilities, DRE would also be able to discipline managers for failure to supervise. This measure was recommended by a DRE Task Force containing REALTOR® members and would go into effect on July 1, 2012. Status: To Governor
C. AB 278 (Hill) - DRE Citation and Fine authority Currently, in order to subject real estate licensees to discipline for any violation, they must go through the Department of Real Estate’s (DRE) administrative hearing process. Notice of discipline, no matter how minor the infraction, is published in the DRE bulletin or on the DRE website widely circulated among real estate agents. AB 278 would allow the DRE to issue a "civil citation" with a maximum fine of $2,500 for minor infractions. Licensees would be permitted to contest the citation through the current hearing process if they wish. The action would not be published in the DRE bulletin, unless there is a contested hearing and judgment, although it could still be discovered in the public record. C.A.R. is sponsoring this legislation so DRE field staff can take immediate action on minor infractions without having to complete the lengthy and expensive hearing process. Amendments to this measure have raised the maximum fine from $1,000 to $2,500 in order to reconcile this bill with a similar provision in SB 53. Status: Senate Floor
D. AB 771 (Butler) - CID disclosure fee limitation. Home Owner Associations (HOAs) are
required by law to provide specific documents to prospective purchasers of homes in common interest developments (CIDs). Current law prohibits HOAs from charging fees in excess of what is "reasonable" based on the actual cost of processing and producing these documents. HOAs are increasingly delegating document preparation to outside third party vendors or contractors who, under a 2007 court decision, are
not subject to this fee limitation. This delegation of responsibility by HOAs sometimes results in home purchasers being forced to pay additional fees for other documents which are "
bundled" with the required documents. AB 771 says that ONLY the fees for the
required documents can be charged upon receipt, effectively prohibiting the "bundling" of fees for other documents with fees for the required documents. The bill also creates a form, which must accompany the documents, detailing the documents that are required. This will eliminate any uncertainty for the prospective purchaser as to exactly which documents are being provided. Status: Signed by the Governor on September 1 (Chapter 206, 2011 Statutes)
E. AB 392 (Alejo) - Brown Open Meeting Act reform Held on Appropriations Suspense file The Brown Act currently requires local government entities to post their agendas 72 hours in advance of scheduled meetings; however, there is no requirement that staff reports be similarly posted. The Brown Act can be satisfied by posting a hard copy of the agenda at a location accessible to the public. This can present a formidable obstacle for individuals and organizations attempting to follow the actions of local governments. C.A.R. is sponsoring AB 392 which would require all local government entities governed by the Brown Act to post their agendas as well as staff reports relating to agenda items on their website (if they have a website - the measure does not require the establishment of a website) allowing individuals and organizations to more easily track proposed government actions. Status: Assembly Appropriations Committee
F. SB 837 (Blakeslee) - TDS tweak for water conservation SB 407 (Padilla), signed into law by the Governor in 2009, requires that all residential properties be retrofitted with low-flow toilets, shower heads and faucets starting with remodels in 2014, all remaining homes by 2017. Additionally, all commercial properties and multi-family homes will need to be retrofitted by 2019. C.A.R. sponsored SB 837 to add language to the Transfer Disclosure Statement (TDS) notifying the purchaser of a property of these impending requirements. The inclusion of this information in the TDS will ensure that sellers and buyers are aware of these water efficiency retrofit requirements and provide disclosure liability protection to REALTORS®. Status: Signed by the Governor on June 30 (Chapter 61, 2011 Statutes)
G. SB 150 (Correa) - CID right to rent There has been a trend among some homeowner associations to adopt restrictions that limit the ability of unit owners to rent their dwellings in Common Interest Developments (CIDs). The imposition of these rental restrictions diminishes an owner’s property rights by removing options that were available when the unit was purchased. C.A.R. sponsored SB 150, a re-introduction of C.A.R.’s AB 2259 (Mullin) of 2008, to protect the right of a CID owner to rent his or her unit, if that right existed at the time the owner purchased the unit. Status: Signed by the Governor on July 8 (Chapter 62, 2011 Statutes)
H. DRE Broker experience requirement - pending 2012 introduction C.A.R.’s Board of Directors directed C.A.R. to pursue legislative opportunities, as they arise, to clarify the law to require "degree brokers" to have an undergraduate degree in real estate or two years of "general real estate" experience. C.A.R. is actively seeking an opportunity to insert the proposal in appropriate legislation; if legislative opportunities do not present themselves in 2011, C.A.R. will "SPONSOR" legislation to achieve the change in 2012.
IV. Action Items A. License and Regulatory - Dennis Pantano, Issue Chair B. Real Estate Finance - Virginia Butler, Issue Chair
1. State Bar Proposal: Anti-Deficiency in Refinanced Purchase Debt* (Please See Issue Briefing Paper) C.A.R.- Sponsored SB 1178 of 2010 would have extended anti-deficiency protection of purchase money mortgages to refinanced purchase money debt, but was vetoed. While that bill would not have spoken directly to loan modification requirements, but by eliminating recourse on the debt it would have forced a change in the posture of loan modification and short sale negotiations. At the time, C.A.R. rejected a proposed amendment from the bankers to limit the bill's effect only to new loans made after the effective date of the bill. C.A.R. argued that such an approach denied protection to borrowers with existing loans that had no knowledge that they had lost purchase money protection by a refinance, and because of the economic downturn, these were the borrowers who most needed protection. The State Bar of California is reportedly prepared to introduce legislation to do just what was proposed: protect the refinanced balance of purchase money mortgages just like the original mortgage (i.e., no personal recourse) but only to the extent of unpaid purchase money balance (no coverage for cash-out portions of the refinance) and only for loans made after bill's effective date.
C. Risk Management and Liability - Roseanne Howard, Issue Chair
D. Transactions - Barbara Delgleize, Issue Chair
1. PACE (Property Assisted Clean Energy) programs* HR 2599 (Thompson) - direction to GSEs(Please See Issue Briefing Paper) Under the PACE program, local governments make loans to homeowners to cover the upfront costs of installing energy improvements. Homeowners repay the loan through a contractual assessment collected at the same time they pay their property taxes; assessments have tax or "first priority" lien status in California and many other states, but not all. The Federal Housing Finance Agency (FHFA) has announced that Fannie Mae and Freddie Mac are prohibited from financing mortgages which have PACE liens senior to a Fannie or Freddie lien.
2. Defining "Cost Effective" for retrofit programs.* (Please See Issue Briefing Paper) The California Energy Commission (CEC), in conjunction with its implementation of AB 758, is considering including societal benefits (i.e., expensive retrofit requirements that yield a nominal increase in efficiency savings deemed to benefit future generations), and costs when determining that an efficiency improvement is "cost-effective". Creating such a broad definition for cost-effective could add thousands of dollars to the cost of purchasing a home if the CEC determines that retrofits at point-of-sale do not unreasonably or unnecessarily affect the home purchasing process. C.A.R. opposes any attempt to impose retrofit requirements at point-of-sale and has historically defined "cost-effective" as any energy efficiency improvement that pays for itself over the useful life of the improvement. Any retrofit that is not cost-effective should never be considered, and those retrofits that are cost-effective should never be required as a condition of sale. Efficiency retrofit requirements that are deemed vital for one segment of the housing supply should be applied to ALL housing and not just those properties that change ownership.
In the final days of session, the Governor introduced a proposal to, among other things; require the Public Utilities Commission (PUC) to establish a standard for cost-effective energy efficiency retrofits. C.A.R. worked to get a statutorily defined definition for "cost-effective" included in the Governor’s proposal. As of the posting of the issues briefing paper, the bill does not include C.A.R.’s language.
V. Reporting Items A. Distressed Property Task Force - Colleen Badaliacco, Chair B. Survey Results: Interim Report Public Policy Reorganization* C. License and Regulatory - Dennis Pantano, Issue Chair
1. DRE Commissioner
2. Bills of others - SB 6 (Calderon) - Opinions of value Existing law already prohibits a licensee from generating an inaccurate opinion of value of a residential property in connection with a short sale in order to create an advantage for him or herself. SB 6 would replace this provision with a prohibition on 1) intentionally misrepresenting the value of property; or 2) providing a valuation that is the basis for a loan origination or modification if the licensee has an interest in the property being valued, as defined in federal regulation. This measure would also expand the existing law that makes it illegal to try to unduly influence someone preparing a property appraisal to include anyone (including a REALTOR®) preparing a "valuation" on a property. Originally, SB 6 contained provisions which could have had inadvertent impacts on REALTORS® ability to provide BPOs. C.A.R. has actively negotiated various portions of the bill and has a neutral position after the most recent amendments. Status: Assembly Appropriations Committee
- SB 53 (Calderon) - DRE omnibus bill SB 53 is an "omnibus" bill affecting multiple areas of real estate rules. Among other things, this measure would parallel C.A.R. sponsored AB 278 (Hill) in creating a cite and fine authority within the DRE. The maximum penalty would be $2,500. This measure would also authorize the commissioner to enforce a subpoena of records, publicize matters under investigation after a D&R (desist and refrain order) and would allow the DRE to "toll" the automatic renewal of a license if they are in process of revoking it. If the DRE does curtail the automatic renewal of a license due to an action being taken against the licensee, the license will not expire until the action has been completed, at which point it will either be revoked or renewed based on the actions outcome. SB 53 allows the DRE Commissioner to have access to information currently unavailable to them from DMV records. It requires reports from any real estate licensee who engages in 5 or more "broker owned" escrow transactions in a calendar year. The bill also makes additional technical changes, such as clarifying that DRE can enforce a license sanction for loan misconduct that has been made by a license violation in the civil code. C.A.R. supports most of these provisions and obtained amendments to ensure due process in DRE procedures for publication of investigations and postponing renewals (and expiration) of licenses being revoked. C.A.R. is seeking amendments to this measure to clarify the cite and fine provision, which currently is in conflict with C.A.R.'s sponsored bill, AB 278. Status: Assembly Floor
- SB 706 (Price) - DRE oversight bill SB 706 is an "omnibus" bill designed to improve the regulatory effort of the Department of Real Estate (DRE) and Office of Real estate Appraisers (OREA). It would allow the DRE and OREA to enter into a pre-prosecution settlement in a disciplinary case with a licensee or an applicant for a license and would allow a judge to order a licensee in a disciplinary proceeding to pay the reasonable costs of the investigation and prosecutions fees as well as any fees related to probation monitoring if the licensee is placed on probation. SB 706 also requires a licensee to inform the DRE if they are charged with or convicted of a felony. As introduced, SB 706 would have revised the functions of the Office of Real Estate Appraisers (OREA) and the Department of Real Estate (DRE). It also would have required, by January 1, 2013, the Secretary of Business, Transportation and Housing to appoint a DRE Enforcement Program Monitor to evaluate the department's discipline process and report back to the department and the legislature by August 1, 2012. Amendments to this measure instead require a State Auditor to conduct an audit of the DRE to assess the effectiveness and efficiency of the DRE's disciplinary process. C.A.R. has also sought and received amendments to this measure to limit overly broad reporting requirements, ensure due process is protected for accused licensees and to avoid the imposition of unnecessary costs on DRE. These amendments remove the requirement that licensee’s report identify themselves as licensees upon arrest. With these amendments, C.A.R. has moved to a neutral position on the bill. Status: Assembly Floor
- SB 376 (Fuller) - Manufactured home financing Existing law defines a "real estate broker’s" scope of practice to include a person who, for a fee, solicits or negotiates loans for the purchase of real property. SB 376 would expand the scope of a "real estate broker" license to include individuals who arrange loans secured by manufactured housing. This C.A.R. supported measure would allow manufactured housing dealers to use a mortgage loan originator endorsement on their real estate license to originate financing for personal property mobile homes and avoid the need for an additional licensing requirement for mobile home sales. Status: Assembly Floor
- AB 22 (Mendoza) - Credit checks As introduced, AB 22 prohibited a prospective employer from "pulling a credit report" for an applicant unless the prospective employee will be a manager. C.A.R. opposed this measure because it could prevent brokers from running credit reports on independent contractors they hire who would have access to finances, trust accounts, etc. but are not managers. AB 22 was amended late in the legislative session to also allow credit reports to be pulled for perspective employees whose new position would require them to access personal or confidential information, deal with their employer's monetary transactions or accounts or positions that involve regular access to $10,000 or more. With these "white collar" exemptions C.A.R. removed its opposition to the bill. Status: Senate Floor
- AB 406 (Davis) Laws regulating adjustable rate mortgages secured by a single family residence require written notification to be provided to borrowers informing them of an impending balloon payment 90 days in advance of the last lower payment. This bill would prohibit balloon payments from being included in the terms of an adjustable rate loan. C.A.R. is seeking amendments to limit this prohibition to predatory loans. Status: Failed passaged in Assembly Banking and Finance Committee
D. Real Estate Finance - Virginia Butler, Issue Chair
1. Qualified Residential Mortgages (QRMs)* 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.
3. GSE Reform 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 has 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.
4. Fannie/Freddie 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.
5. SAFE Act seller financing rules On June 30, 2011, the Department of Housing and Urban Development (HUD) published a final rule under the Secure and Fair Enforcement Mortgage Licensing Act of 2008 (SAFE Act) (the rule took effect August 29, 2011). The SAFE Act requires states to establish loan originator licensing requirements that meet minimum federal standards. HUD had overall responsibility for interpretation, implementation, and compliance until July 21 when the Consumer Financial Protection Bureau takes over.
In the preamble to the rule, HUD states that it lacks statutory authority to grant exemptions to licensing under the SAFE Act. The final rule requires licensing of individuals who engage in the business of a loan originator. An individual engages in the business of a loan originator if the individual, in a commercial context and habitually or repeatedly, takes a residential mortgage loan application and offers or negotiates terms of a residential mortgage loan for compensation or gain.
HUD chose not to decide how frequently an individual may provide financing before reaching the requisite degree of habitualness. NAR expects CFPB to defer to reasonable state laws on the number of seller financing transactions that would trigger licensing. Sellers financing the sale of their own property would completely avoid the issue of licensing by retaining the services of a licensed loan originator.
The Safe Act exempts those who only perform real estate brokerage activities unless compensated by a lender, mortgage broker, or other loan originator (or their agent). In cases where a real estate broker/agent receives a commission from the lender for the sale of a REO, individuals must only be licensed if they meet the definition of "engaging in the business of a loan originator." Brokers/agents rarely, if ever, take an application or offer to negotiate terms of a residential mortgage loan for REO transactions and typically would not have to be licensed as loan originators.
C.A.R.'s Legal Department is working on updating their SAFE Act Q&A.
6. Mortgage Servicing Reform In the wake of the housing crisis, a strong push is being made to reform and standardize the mortgage servicing process. This is taking place at both the regulatory and legislative levels. While it is too early to know what exactly may come out of these regulatory and legislative efforts, issues they are looking at include:
• Assigning a single point of contact for troubled homeowners, • Requiring attempts at modification or foreclosure alternatives prior to foreclosing, • Prohibiting the servicer from taking steps towards the foreclosure process such as sending the foreclosure notice, scheduling an auction or sale, or entering a judgment against the homeowner, • The fee structure which mortgage backed securities utilize to pay servicers, • The transparency of the servicing process, including the handling of a distressed mortgage, • Conflicts of interest when a servicer for a first lien also holds a subordinate lien, and; • Other issues.
7. FHA condo requirements In July, the FHA released Mortgagee Letter 2011- In line with C.A.R.’s recent policy position: Condominium Approval Process for Single Family Housing - Consolidation and Update of Approval Requirements. The Mortgagee Letter was released along with an implementation schedule and the Project Approval and Processing Guide in an effort to clarify, expand, consolidate and update existing guidance. The new guidance provides increased flexibility for FHA to address individual circumstances so that the agency can be more effective at the neighborhood level.
In the new guidance, FHA made permanent the temporary measures from Mortgagee Letter 2011-03. The concentration limit is 50 percent but Homeownership Centers (HOC) may grant exceptions to go beyond 50 percent. FHA requires that 50 percent of units be owner-occupied but FHA will reduce this to 30 percent for new construction. At least 30 percent of units must be sold prior to endorsement of any mortgage by FHA. This pre-sale requirement is not applicable to existing projects or non-gut rehabilitation projects.
One of the more notable changes is in the calculation of delinquent homeownership association (HOA) dues. Previously, FHA permitted no more than 15 percent of units to be in arrears but this did not include bank-owned foreclosures. The new guidance states that the calculation includes all units - occupied, investor, bank-owned, and vacant). FHA did not increase the maximum permitted investor ownership of units or commercial space requirements.
8. HARP GSE refinancing program - S 170 (Boxer); HR 363, (Cardoza); “no appraisal” refinances In line with C.A.R.’s recent policy position taken in May, NAR is also supporting legislation that directs Fannie and Freddie to refinance their current book of loans at today’s current interest rates regardless of a loan’s current loan-to-value. The home, subject to the mortgage, must be occupied by the borrower as the principal residence. The existing GSE refinancing program, called HARP, only allows refinancing of mortgages where the loan-to-value ratio does not exceed 125%. The new program would (i) have no loan-to-value limits, (ii) require an interest rate no more than 40 basis points higher than the prime rate, (iii) waive prepayment penalties, (iv) limit the term to 40 years, and (v) prohibit any additional fees beyond the standard guarantee fee for refinancing a mortgage. The program expires one year after enactment, but may be extended in one year increments by the Federal Housing Finance Agency, which regulates the GSEs. While slightly different, there are bills in both the House and Senate. S. 170, introduced by California Senator Barbara Boxer, and H.R. 363, introduced by California Representative Dennis Cardoza.
9. Bills of others
- SB 729 (Leno) - Foreclosure procedure Under existing law, expiring January 1, 2013, a mortgagee must notify a borrower that their mortgage is in default 30 days in advance of the recording of a notice of default (NOD). SB 729 would create additional steps that a lender must complete prior to recording a NOD. Under this measure a mortgagee would be required to examine all possible foreclosure mitigation options prior to foreclosing. A borrower that is in default, prior to the recording of a NOD, shall be contacted by the lender and informed of their foreclosure mitigation options and provided a 45 days deadline to submit a loan modification application. Once an application is received a lender may not proceed with recording a NOD until a decision has been rendered on the borrower's application, at which point the lender may either proceed with the modification or provide the borrower with a denial explanation letter. SB 729 would require a lender who has complied with the above provisions to include a declaration of compliance with the NOD that is recorded. This measure would also allow the sale to be challenged for up to one year, if the provisions of this measure are not complied with, for a borrower to stop of trustee sale or recover damages, attorney's fees and costs from their lender. C.A.R. is opposed to SB 729 because C.A.R.is concerned that this measure will jeopardize mortgage availability and the housing markets’ overall recovery. In addition, the one year delay in obtaining clear title and a new private right of court action will negatively impact the market. Status: Failed passage in the Assembly Banking and Financial Institutions Committee
- AB 1321 (Wieckowski) - Recording deeds of trust and MERS Recording an interest/encumbrance against real property gives constructive notice to all of an interest in the property, and establishes "first in time" priority, but is not required. AB 1321 would require a mortgage or deed of trust to be recorded against a property within 30 days of their execution, although no penalty is specified. It would also prohibit a mortgagee from recording a notice of default for a mortgage or deed of trust until 45 days after the deed or mortgage document has been recorded. This measure would prevent use of the so-called MERS system that allows lenders and investors to transfer notes and other interests in real property amongst themselves without recording each transfer. Status: Held in the Assembly Judiciary Committee
- AB 407 (Davis) Under current law, the principal and accumulated interest for any loan secured by a mortgage or deed of trust on a one to four unit, owner-occupied residence can be repaid at any time. However, if the repayment is made within seven years of the initial loan date, the lender can impose a re-payment penalty. AB 407 would have changed this law to prohibit prepayment charges on these loans. C.A.R. has generally not been in favor of restrictions on loan products except in the case of predatory lending. Status: Failed passage in the Senate Labor and Industrial Relations Committee
- S. 637 (Feinstein and Boxer) - Earth Quake insurance Affordability Act California Senators Dianne Feinstein and Barbara Boxer in March introduced S. 637, the Earthquake Insurance Affordability Act, and California Congressman John Campbell has signaled his intention to introduce companion legislation in the House before the end of the year. The legislation would authorize the Treasury to guarantee debt issued by qualified state earthquake insurance programs such as the California Earthquake Authority (CEA). The purpose of this legislation is to allow the CEA to avoid paying the high cost of re-insurance premiums. It has been estimated that if this legislation passes the CEA would be able to reduce their premiums by up to 30 percent or cut their deductible by up to 50 percent.
C.A.R. has supported the involvement of the federal government in backstopping the CEA through previous bill that would have created a federal reinsurance program. It is unclear if this policy covers the guaranteeing of CEA debt by the Treasury as proposed in these bills. E. Risk Management and Liability- Roseanne Howard, Issue Chair 1. MARS (Mortgage Assistance Relief Services) short sale rule 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.
2. Bills of others - SB 62 (Liu) - Expanded notice to owners of foreclosure actions against their property Existing law allows the Los Angeles County Board of Supervisors to authorize the Los Angeles County Recorder to mail a notice of recordation of a deed, quitclaim deed or deed for trust to the property owner within 30 days of it being recorded. SB 62, until January 1, 2015, allows the recorder or designee of the board to mail a similar notice of recordation for notices of default or notices of sale to the affected parties. This measure also authorizes the recorder to charge an additional fee, not to exceed seven dollars, for mailing the recordation notices and/or providing information, counseling or assistance to the party receiving the notice. C.A.R. supported this expansion of the local government's "postcard" notice program. Status: Signed by the Governor on August 1 (Chapter 141, 2011 Statutes)
- SB 221 (Simitian) - Small claims court $10,000 jurisdiction Under current law small claims courts have jurisdiction over actions in which the demand does not exceed $7,500. SB 221 expands this demand amount to $10,000 until January 1, 2015. This increased demand amount applies to all actions except for those involving bodily injury, which will only go to $7,500 or less. C.A.R. supported this expansion as it would allow more actions to be handled in a small claims court. Status: Signed by the Governor on July 8 (Chapter 64, 2011 Statutes)
- AB 37 (Huffman) - Smart meters This measure would, amongst other things, require utilities to provide alternative options to the installation of radio frequency Smart Meters, and halt the installation of radio frequency Smart Meters until the alternatives are both identified and available. While C.A.R. continues monitoring this measure as it moves through the legislative process, the author has stalled the advancement of the measure because the Public Utilities Commission (PUC) has determined that they would authorize PG&E customers the ability to opt-out. The bill will remain alive and intact until the PUC concludes the proceedings. Status: Assembly Utilities and Commerce Committee
- AB 643 (Davis) AB 643 would expand the fiduciary responsibilities of mortgage brokers. Under this measure mortgage brokers would be required to provide prepurchase counseling to a borrower to advise them on a "prudent debt-to-income ratio," which would be determined by a standard method created by the Department of Corporations, the Department of Financial Institutions and the Department of Real Estate. This measure would also prohibit a mortgagee, trustee or beneficiary from filing a notice of default unless the borrower has been provided with pre-foreclosure counseling explaining foreclosure prevention and negotiation options. C.A.R. is opposed to AB 643 because the ambiguity and breadth of the counseling mandate for both the prepurchase and pre-foreclosure requirements will make it difficult for loan originators and foreclosing entities to be sure if they have sufficiently satisfied the counseling mandates. Status: Assembly Banking and Finance Committee
F. Transactions – Barbara Delgleize, Issue Chair
1. (Bass) - FHA first time buyer counseling California Representative Karen Bass (D-CA), will introduce a bill that would incentivize first-time homebuyers to obtain housing counseling. The bill would provide a reduction in the up-front mortgage insurance premium for FHA borrowers who obtain pre-purchase counseling. Housing counseling can be a valuable tool to help homebuyers and homeowners not only make the dream of homeownership a reality - but retain it as well. Rep's Bass expects to introduce her legislation shortly. NAR has issued a letter of support for this legislation.
2. Disposition of GSE owned REO in "bulk sales" 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.
3. Lender outreach meetings.
4. Bills of others - AB 935 (Blumenfield) - $20,000 foreclosure tax This measure would prohibit a county recorder from accepting a notice of trustee's sale for recordation unless the mortgage servicer pays a foreclosure mitigation "tax" of $20,000. The recorder will hold the money in trust until a trustee deed of sale is filed at which point the money would be deposited into the Foreclosure Mitigation Fund. The funds will be available for a number of purposes including K-12 education and community colleges, public safety, redevelopment, small business loans and mitigating the effects of foreclosure. However, should a notice of rescission be filed with the recorder the $20,000 would be returned to the servicer. C.A.R. opposes AB 935 because it will discourage lenders from extending mortgages to homebuyers and increase costs of foreclosure. Status: Held in the Assembly Banking and Finance Committee
- AB 645 (Davis) AB 645 would expand a mortgage broker’s fiduciary responsibility to a borrower. Under current law a mortgage broker is required to place a borrowers' economic interest before their own. This measure will also require a mortgage broker to provide a borrower with information on the pros and cons of all loan options available to the borrower and, should the borrower not choose the most advantageous product and go into default the mortgage broker would be required to send a letter to consumer reporting agencies explaining who brokered the loan and that it was not the most advantageous product that the borrower could have chosen. C.A.R. is opposed to these new duties because they are unworkably broad and invite litigation, and because they burden only brokers and not all loan originators. Status: Assembly Banking and Finance Committee
- SB 653 (Steinberg) - Local tax authority SB 653 would authorize county boards of supervisors to place any tax on the ballot before the voters without restriction - including taxes that even the Legislature has not chosen to impose. C.A.R. was opposed to this measure as it believes that counties should not have such open ended authority to impose taxes. Of paramount importance, C.A.R. was concerned that SB 653 would allow counties to impose a tax on services which would adversely impact the already fragile economy. In the wake of C.A.R.’s opposition SB 653 was amended to specify exactly what taxes could be enacted removing the possibility of a service tax from the bill's provisions. With these amendments C.A.R. removed its opposition. At the May Board of Director’s meetings, the Board voted to renew C.A.R.'s opposition. C.A.R.'s leadership subsequently re-examined the issue and returned to a watch position. Status: Senate Floor Inactive File