Douglas Ballroom B – Ground Level Manchester Grand Hyatt San Diego, CA Thursday, January 27, 2011 3 p.m. – 5 p.m.
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. Short Sale Legislation (IBP) Should C.A.R. propose short sale legislation intended to improve and ease the short sale transaction?
B. Housing Committee – Allen Okamoto, Chair
C. Taxation & Government Finance Committee – Patricia Bouie-Hinds, 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
B. Oral Report from Staff 1. A look ahead to the 112th Session
IV. Regulatory Process
V. Review of Dodd-Frank & its Impact
VI. C.A.R. Federal Priorities in 112th Session
A. Real Estate Tax Issues In February of 2010, President Obama issued an Executive Order creating the National Commission on Fiscal Responsibility and Reform (Commission). The purpose of the Commission was to come up with recommendations to balance the budget, excluding interest payment on the debt, by 2015. While the Commission was merely an advisory body to the President, when they issued their final report late last year it sparked discussion and debate on how the country can cut costs and raise revenue.
Included in that discussion was a reduction in the mortgage interest deduction(MID) that would have severely limited the MID benefit for all homeowners and more so in high cost states such as California. While the Commission failed to garner the 14 out of 18 votes it needed to send the proposal to Congress, it did gain 11 bi-partisan votes. Given the harsh economic climate the government faces, the MID issue, as well as other real estate tax provisions are very likely to be on the table again.
B. GSE Reform and Loan Limits 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 in the new Congress.
While this is a priority for Congress, it is unknown what shape GSE reform will take. The White House is expected to release their GSE reform proposal by the end of January; however, details of their plan are not yet being released. 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? Debate and proposed legislation are expected to be introduced early in the Session, and while the House may move something relatively quickly, it will likely take the Senate some time to gather the 60 votes needed to pass anything.
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. However, unlike prior years when the loan limits were extended for the full 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.
It has been speculated that some GOP members of the House Financial Services Committee will begin the 112th Session of Congress by attempting to lower the GSE and FHA loan limits.
C. FHA Over the last two years, the Federal Housing Administration (FHA) has seen its market share across the country skyrocket. Currently FHA accounts for over 30 percent of the mortgage market. Many in Congress view this as government intrusion into the mortgage market. Much like the GSE debate on what the government’s role in housing finance should be, there is expected to be strong support to pass legislation that will roll back FHA’s market share. This may be done by reducing its loan limits, increasing the FHA downpayment minimum or other possibilities.
D. 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.
E. Energy & Climate Change As Congress looks at the issues of energy conservation and climate change, one of the items that will be discussed is the carbon footprint of homes and commercial buildings. Last session the House passed a number of bills that would impact real estate including incentives for property owners to make energy efficient upgrades to their properties. There were also attempts to create labels for existing properties; efforts that were successfully beaten back by REALTORS®.
F. Affordable and Available Property Insurance On September 30, 2010, the President signed a one year extension of the National Flood Insurance Program (NFIP). For some time now Congress has been approving a series of short-term extensions of the NFIP while discussions continue over comprehensive reforms to improve the program's actuarial and financial foundations. Without the NFIP, property owners in federally designated areas across nearly 20,000 communities nationwide could not obtain a mortgage or flood insurance to protect their properties. Following a series of disasters the program has become insolvent and has required federal funding to continue to issue policies. Reform of this program will have to eventually be done to ensure the program can function on its own.
G. Private Transfer Fees The Federal Housing Finance Agency (FHFA) has issued a 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.” Both C.A.R. and NAR have asked for this prohibition on private transfer fees (PTF) and are supportive of the proposed guideline’s intent.
An area of question is the guideline’s failure to grandfather in existing PTFs. This may make properties with existing PTFs unmarketable to anyone who would otherwise utilize conventional financing. In the example of where a homebuilder placed a PTF on a property sold years ago there is little to no leverage to force the homebuilder to remove the PTF since they no longer own the property.
C.A.R. has submitted a comment letter stating our support for the proposed guideline, but asking that existing PTF be grandfathered in for the purpose of federal financing.
H. Commercial Mortgage Market Liquidity Capitol for commercial lending continues to be in short supply. While the federal government has stepped in to supply liquidity to over 90 percent of the home mortgage market, there was no equivalent for the commercial market which prohibited borrowers from refinancing when their balloon payments came due.
Earlier this year, positive signs were seen as investors quickly snapped up $4 billion in commercial mortgage bonds. As the government continues to hold Treasury rates at historic lows investors are beginning to see opportunity in putting their money, though limited, back into other investments with greater returns, such as commercial mortgages.