A. Legislature and state budget developments - Staff will provide an update on the recent developments in the state legislature and the pending budget issues.
B. Overview of the C.A.R. policy formation process - An overview of the process by which a proposal becomes part of, or changes, C.A.R. policy and how a policy proposal becomes part of California law.
C. Member mobilization - A brief overview of the member mobilization system and broker involvement program.
III. Action Items
A. Real Estate finance - Virginia Butler, Issues Chair
1. Federal short sale regulation bill* Should C.A.R. propose short sale legislation intended to improve and ease the short sale transaction? (Please see issues briefing paper regarding proposed changes in federal law to regulate short sales).
2. Loan Limits
B. License and Regulatory - Dennis Pantano, Issues Chair
1. SB 53 (Calderon), real estate omnibus
a. Citation and fine authority - $2500 vs. $1000 - C.A.R. is sponsoring a bill to provide citation and fine authority to DRE. When the proposal was approved in October 2010, a cap on the maximum fine was added to limit fines to $1000. SB 53 parallels the C.A.R. bill, except that Senate Banking Committee staff and Senate Business and Professions staff have set the maximum fine at $2500 in the belief that a $1000 limit does not provide enough authority to DRE.
b. DRE discovery of records - DRE is currently allowed to administer an administrative subpoena demanding access to a licensee's records. However, if a licensee refuses to allow access, the DRE must pay the Attorney General's office to enforce the subpoena and compell compliance. The proposal is to allow DRE lawyers to enforce the subpoena on their own, just like any other litigant.
c. Escrow reporting threshold - Real estate brokers have historically been required to notify DRE when they exceed a certain "threshold" of mortgage loan activity (either brokering or servicing of notes). Brokers can also provide escrow services on transactions in which they represent one of the parties without having to get a Department of Corporations escrow company license, but there is no similar reporting requirement. So called "broker owned" escrows are exempt from the DOC regulation, but there is no requirement to notify DRE that the broker is engaging in escrow activity. The bill proposes to require licensees to notify DRE when they engage in more than 5 such escrows per year. I
Is it appropriate to notify DRE that a licensee is conducting escrows? Is 5 the right number of escrows to trigger the reporting requirement?
d. Access to DMV records - DRE investigators have historically been able to obtain access to DMV records in connection with an audit so as to obtain pictures and other information regarding the audited licensees. Recent public records law changes have resulted in denial of access to DMV records - this part of the legislation proposes to restore access to DMV records in connection with an audit.
e. Technical changes - The bill makes additional technical changes, such as clarifying that DRE can enforce a license sanction for loan misconduct that has been made a license violation in the civil code.
2. SB 6 (Calderon) Valuation opinions - This bill proposes to clarify in statute the interpretation previously made by C.A.R. that a licensee's valuation opinion is exempt from regulation under the appraisal law only if the opinion is rendered as part of licensed activity subject to the employing broker's control.
C. Risk Management and Liability - Roseanne Howard, Issues Chair
1. SB 62 (Liu) Expanded notice to owners of foreclosure actions against their property. - Existing law allows local government to adopt a so-called "post card notice" to property owners that alerts them to transfers of an interest in their property (new deeds, sales or loans). When such an interest is recorded the postcard notice is sent to the owner of record. This bill attempts to broaden the warning to include Notices of Delinquincy or Notices of Sale as well. C.A.R. did not oppose the existing postcard notice program. Should C.A.R. take a position on the bill?
D. Transactions - Barbara Delgleize, Issues Chair
1. SB 2 (Calderon) Short sale facilitators advance fee restrictions; "do it yourself" disclosure. As a result of the widespread concern about fraudulent loan modification schemes, the legislature passed restrictions on collection of advance fees in loan modification contracts, and required loan modification contracts to notify borrowers that they did not need to hire someone in order to request a modification from their lender. This bill proposes to apply the same approach to short sale negotiators that are not engaged in sales activity (i.e. that do not represent one of the parties). In addition to prohibiting payment until after work is completed, the bill would also include required disclosure language that a short seller need not hire a negotiator to facilitate a short sale.
Is it appropriate to apply the loan modification rules to short sale negotiators?
Some Realtors(c) have objected to contracts that require buyers' agents to pay the cost of short sale negotiators hired by a listing agent. Should C.A.R. propose amendments to the bill that require the employer of a negotiator (typicallly the listing agent) to pay for their fee?
2. SB 4 (Calderon) Notice of sale statutory disclosures - This bill would require a Notice of Sale to include specific language that cautions potential bidders to make sure of the title status of the property that they bid on, and warns them that other liens may be senior to the foreclosing lender. The expanded notice would also notify owners that the foreclosure sale may be postponed.
E. Other Action Items and Proposals
IV. Reporting Items
A. Sponsored Legislation
1. Anti-Deficiency protections - C.A.R.’s Board of Directors has directed C.A.R. to re-introduce C.A.R. sponsored SB 1178 (Corbett, 2010), which was vetoed by Governor Schwarzenegger.
Anti-Deficiency rules protect a borrower from personal liability on a purchase money mortgage which goes into default and eventually Judicial foreclosure. Due in part to declining interest rates, many purchase money mortgages have been refinanced and have lost their characterization as "purchase money". C.A.R. will “SPONSOR” legislation in 2011 to extend anti-deficiencyprotections to homeowners who have refinanced “purchase money” loans and are now facing foreclosure.
The bill will extend anti-deficiency protections to cover the refinance of purchase money mortgages that include debt incurred to acquire, construct or improve the home. Any portion of a loan which was not used in the original acquisition, construction or subsequent improvement of the real property (i.e. vacations, education, hospital bills, vehicle purchases, etc.) will not enjoy the same anti-deficiency protections.
2.DRE designated manager rule - Under current law, the Department of Real Estate (DRE) is technically only permitted to hold the broker of record accountable for any misconduct of a salesperson, even if the broker of record has delegated supervisorial responsibility to an office manager. C.A.R.’s Board of Directors has directed C.A.R. to “SPONSOR” legislation to 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 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 delivered to DRE. The bill will allow DRE to create an office manager registration and principal brokers to notify the DRE of their office manager appointment. DRE will also be permitted to subject office managers to disciplinary action for failing to properly supervise the licensed activities within their jurisdiction. Principal brokers will still be held responsible for the supervision of their designated office managers.
3. DRE citation Authority -Currently, real estate licensees subject to discipline for any violation must go through the Department of Real Estate’s (DRE) administrative hearing process. Notice of the infraction, no matter how minor, is then published in the DRE bulletin, which is widely circulated among real estate agents. C.A.R.’s Board of Directors has directed C.A.R. to “SPONSOR” legislation to allow the DRE to instead issue a “civil citation” with a maximum fine of $1,000 for minor infractions. Licensee would be permitted to contest the citation through the current hearing process. 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.
4. Common Interest Development document fees**- Home Owner Association’s (HOA’s) are required by law to provide specific documents to prospective purchasers of homes in a common interest developments (CIDs). Current law prohibits HOA’s from charging an amount in excess of what is “reasonable” based on the actual cost of processing and producing these documents. HOA’s are increasingly delegating document preparation to outside third party venders or contractors that, as determined by a 2007 4
th Appellate District Court decision, are not subject to this fee limitation. This delegation of responsibility by HOA’s sometimes results in home purchasers being forced to pay inflated fees. C.A.R.’s Board of Directors has directed C.A.R. to “SPONSOR” legislation to extend the existing fee limitation for providing documents and materials to companies retained by HOA’s, which will assure that CID document costs are kept at a reasonable level.
5. Public agency agendas (Brown Act) reform** - Current law requires local government agendas to be made available to the public 72 hours prior to a scheduled meeting. Most local governments provide hard copies of these materials at a designated location, but many do not make the materials available electronically. C.A.R.’s Board of Directors has directed C.A.R. to “SPONSOR” legislation to amend the Brown Act to require local governments to post meeting agendas as well as any staff reports on their website, if they have one, 72 hours prior to a scheduled meeting. This legislation will allow interested parties to obtain complete information on agenda items under consideration by local governments in a timely matter.
[**C.A.R. sponsored legislation in other committees]
B. Real Estate finance - Virginia Butler, Issues Chair
1. GSE Reform - 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.
2. 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. 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.
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.
3. 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.
4. FHA Pilot Equity Share Program - During NAR’s 2010 November Business Meetings, the NAR Board of Directors voted to support a shared-equity pilot program for the FHA. A shared equity mortgage (also called a shared-appreciation mortgage) involves a third party investor who contributes capital into the home purchase. This capital is provided at no interest. Instead, the investor gets a share of any future equity.
The benefits for the homeowner include less debt and lower payments. The risk for homeowners is loss of future equity. In this arrangement, the homeowner and investor each are entitled to a pre-defined percentage of future equity. If the home appreciates substantially, the homeowner may lose significantly more equity than was originally invested. On the other hand, if the home does not appreciate, the investor may not recoup their investment.
Rep. Gary Miller (R-CA) introduced a bill last Congress to establish a shared-equity homeownership pilot program for FHA borrowers. The program would last two years and would be limited to no more than 8 FHA-approved equity partners, and a limit on the total equity they can invest. In addition, FHA borrowers shall retain no less than 60 percent ownership equity. FHA borrowers would be required to invest not less than 3.5% the value of the home as a downpayment – separate and apart from any additional equity from the investor. In return, monthly payments would be less for these borrowers, due to the increased equity and smaller mortgage amount. In addition, it is expected that participants in the program would have lower insurance premiums than other FHA borrowers, due to the reduced risk of these mortgages.
5. Review NAR’s New Credit Policy - Mortgage lenders, FHA, the GSEs, and federal regulators have responded to the housing crisis by imposing so many safeguards that there is little risk to making new loans. The GSEs and FHA have a public mission to provide mortgage liquidity to qualified home buyers, including low- and moderate-income families and first-time homebuyers. This mission is being impaired by unnecessarily restrictive limits on the availability of credit. Private lenders are making hardly any mortgage loans not insured by FHA or purchased by the GSEs, creating a significant imbalance in the mortgage market now dominated by government-related lending. These extremely tight credit policies are significantly delaying the recovery of the housing market and the economy as a whole.
In response to the issues above, NAR adopted the following policy at their 2010 November Business Meetings urging mortgage lenders, the Federal Housing Administration (FHA), the government-sponsored enterprises (Fannie Mae and Freddie Mac or the GSEs), and federal regulators to reassess and amend their credit policies in order to increase lending to qualified homebuyers, including the specific policy changes recommended by NAR.
SPECIFIC RECOMMENDATIONS 1. Education and Counseling 2. Impact of Lowering Available Lines of Credit and Increasing Utilization Rates on FICO Scores 3. Impact of Adverse Credit Events on the Ability to Purchase Another Home 4. Need to Change Reporting and Treatment of Loan Modifications/Payment Plans 5. Adverse Impact of Requiring a Borrower to Be Delinquent before Being Considered for a Loan Modification, Short Sale, or Deed-in-Lieu of Foreclosure 6. Strategic Defaults 7. Need for Research on the Impact of Credit Policies on Underserved Groups 8. Free Credit Scores
6. State issues - Review of mortgage related legislation introduced in California
7. Other updates
C. License and Regulatory - Dennis Pantano, Issues Chair
1. DRE regulations, 2010 - Brief overview of regualtory changes adopted by DRE in the last year.
2. OREA regulations on Appraisal Management Companies - Summary of recently released regulations by the Office of Real Estate Appraisers requiring registration of Appraisal Management Companies, and background checks of principal owners.
3. DRE Commissioner Selection Task Force - Brief report of the C.A.R. special committee to review candidates for appointment as real estate commissioner that are seeking C.A.R.'s support with Governor Brown. The C.A.R. committee is actively seeking potential candidates for consideration.
D. Risk Management and Liability - Roseanne Howard, Issues Chair
E. Transactions- Barbara Delgleize, Issues Chair
1. Distressed Properties Task Force -A report on the discussions and possible recommendations of the newly appointed Distressed Properties Task Force.
2. Lender outreach meetings -Update on efforts to seek a cooperative relationship with lenders to improve the speed and consistency of short sale transacions.
F. Other Reporting Items
"* " Denotes an item with an accompanying issues briefing paper.