Agenda SummaryFederal Issues Committee Anaheim Marriott Hotel Grand Ballroom Salon A/B Anaheim, CA Thursday, January 26, 2006 3:00 PM – 5:00 PMPresiding: Ann Throckmorton, Chair Malcolm Bennett, Vice-Chair Susan Tilling, Vice-Chair Jeannette Way, Executive Committee Liaison Gary Thomas, NAR Committee Representative Paul Cardus, GAD Liaison
C.A.R. Staff: Matt Roberts, Federal Governmental Affairs Manager Jeff Keller, Public Policy AnalystI. Opening Comments: Ann ThrockmortonII.Approval of Previous Meeting’sNotesIII. Report of Action Items from Reporting CommitteesA. Real Estate Finance B. Taxation C. Land Use and Environment D. Equal Opportunity – Cultural Diversity E. Housing Opportunity F. Commercial InvestmentIV. Eminent Domain Task Force Preliminary ReportV. First Impression IssuesA. Report/Discussion Items1. Do-Not-Fax Fix. In July 2005 the Junk Fax Prevention Act was signed into law and protected businesses from a 2003 Federal Communication Commission (FCC) rule that prevented the sending of faxes without prior written permission from the recipient. The new law allowed for an established business relationship exemption to this rule. The Junk Fax Prevention Act was not supposed to preempt state laws. However, the FCC is now trying to say that their rulings on Do-Not-Fax can preempt state law when it concerns any form of interstate fax activity. Currently in California, if a person puts themselves on the Do-Not-Fax list, they cannot be faxed whether or not there was a prior established relationship. The FCC is claiming that the Junk Fax Prevention Act preempts California law. This preemption would put people doing business inside of California at a disadvantage to those faxing into California from other states. C.A.R. has sent comments to the FCC concerning this problem.2. Data Security. Proposed legislation in the 109th Congress would set federal requirements on how businesses and agencies that collect and compile personal information on consumers must notify those consumers when their information has orhas possibly been stolen. Senator Dianne Feinstein (D-CA) and Representative Melissa Bean (D-IL) have introduced the Notification of Risk to Personal Data Act, S. 115 and H.R. 1069. While both versions of the legislation contain preemption clauses, both contain an exemption for California law that pertains to this issue. This would allow California’s Civil Codes 1798.82 and 1798.29, to maintain jurisdiction on businesses and agencies that do business in California.
Because both bills have yet to have any action taken on them, it is possible that the California exemption could be eliminated from the final version, and the States Civil Code would become null. The text of S. 115 is extremely similar to the California Civil Code. H.R. 1069 contains all of S. 115 provisions with some additions. S. 115 currently has no cosponsors and has been referred to the Senate Committee on the Judiciary. H.R. 1069 has 18 cosponsors, including Barbara Lee and Lynn C. Woolsey from California, and has been referred to the House Subcommittee on Commerce, Trade and Consumer Protection, House Government Reform and House Financial Services.Additional legislation moving through Congress on this issue is S. 1408, the Identity Theft Protection Act, introduced by Senator Gordon Smith (R-OR) and H.R. 4127, introduced by Representative Steven LaTourette (R-OH). S. 1408 was marked up out of the Committee on Commerce, Science, and Transportation. This proposed legislation would set out a list of requirements that any business that holds and collects consumer information would have to follow to protect against the theft of that information. In addition, S. 1408 prescribes how a business would contact consumers whose information may have been compromised. As the legislation is currently written, it would preempt state laws. H.R. 4127 would create a national standard for the protection of data; require free,six-month credit-monitoring services after breaches, and ensure the notification of consumers if their data is compromised. H.R. 4127 would preempt more that 20 existing state laws. Currently H.R. 4127 isin the House Financial Services Financial Institutions Subcommittee and will not be readdressed until later in the 109th’s 2nd session.3. Asbestos. In the 109th Congress’ 1st session Senator Arlen Specter (R-PA) and Representative Mark Steven Kirk (R-IL) introduced the Fairness in Asbestos Injury Resolution Act, S. 852 and H.R. 1360. The bills would establish a fund regulated by a new office within the Department of Labor, called the Office of Asbestos Disease Compensation, and directed by a new Administrator. The purpose of the office is to process claims for compensation for asbestos-related injuries. The Administrator would:
Establish an Advisory Committee on Asbestos Disease Compensation and a Medical Advisory Committee,
Establish a comprehensive asbestos claimant assistance program that includes legal assistance, and
Appoint physicians to claim-specific Physicians Panels.
All asbestos claims pending on the date of enactment of the law would be stayed, and the law would establish methods for award amounts and payments. Defendant payments into the fund would be determined by an Asbestos Insurers Commission. S. 852 has 19 cosponsors and is in the Committee on the Judiciary and mark up has been completed. H.R. 1360 has 8 cosponsors and has been referred to the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises. Senate Majority Leader Frist has said that Asbestos legislation will be the first priority when the 109th Congress returns in January for their 2nd session.VI. Taxation IssuesA. Discussion/Reporting Items:1. Employee Housing Downpayment Assistance. Due to the high cost of housing, employee downpayment assistance programs are becoming more frequent among employers as a means of attracting and retaining employees. However, under current law there are no incentives for employers to offer this benefit and this type of assistance is often treated as taxable incometo the employee. In September 2005 C.A.R took the position to “SUPPORT” in concept the creation of employee benefit plans designed to a) give employers an incentive to provide their employees with housing downpayment assistance and/or b) make the downpayment assistance tax-free to the employees.During the first session of the 109th Congress two bills were introduced concerning employee housing downpayment assistance. S. 1330 (Clinton D-NY) currently has four cosponsors and is in the Senate Committee on Finance. H.R. 3194 (Velazquez D-NY) currently has 20 cosponsors and is in the House Subcommittee on Housing and Community Opportunity. Both billswould give employers a tax credit of up to 50 percent of $10,000 or 6% of the purchase price of the employee's principle residence (whichever is less). If the housing assistance is for a rental, then the amount of assistance is capped at $2,000. In addition, the housing assistance provided by the employer will be excluded from the employee’s taxable income.In order to qualify for the employee housing downpayment assistance and to have the assistance be tax-free, the employee must be a first-time homebuyer, which includes a person who did not own a principal residence two years prior to the purchase of the home. Also included as a first-time homebuyer for the purpose of this legislation is any person who did not own a principal residence located within 50 miles of the employer two years before the purchase of the home. Additionally, the employee may not earn more than 120% of the median gross income of the area where the house is. Finally,the home being purchased may not exceed 90% of the average area purchase price or 3.5 times the 120% income cap for the area, whichever is greater. For example, if an area’s average home price was $100,000 and120% of the median gross income of the area was $30,000, the home purchase price would be capped at $105,000 ($30,000 x 3.5) because it is greater than $90,000 (90% of average home price).2. Estate Tax. Effective in 2010, the estate tax will be repealed. In the interim, the amount of the exclusion will gradually increase from $675,000 to $3 million and the estate tax rates are gradually reduced to a maximum of 45%. As under prior law, the basis of assets received between 2001 and 2010 is "stepped up" to its fair marketvalue as of the time of death. When repeal comes into effect, the estate will not be taxed, but the basis of assets that heirs receive will be "carried over" so that the basis in the hands of the heir is the same as the basis of the previous owner. In 2011, the estate tax laws that were in effect June 6, 2001 will come back into effect.
On April 13, 2005, the House voted 272 – 162 to pass H.R. 8, the Death Tax Repeal Permanency Act, which would make permanent the death tax repeal after 2010. Companion legislation in the Senate, S 420, introduced by Senator Jon Kyl (R-AZ), has 21 cosponsors and has been referred to the Senate Committee on Finance. No actions have been taken on S 420 since it was introduced.3. Natural Disaster Insurance.On May 26, 2005, Representative Mark Foley [R-FL] introduced H.R. 2668, the Policyholder Disaster Protection Act of 2005. H.R. 2668 would amend the Internal Revenue Code to allow insurance companies (other than life insurance companies) to make tax deductible contributions to a tax-exempt policyholder disaster protection fund established by this Act for the payment of policyholders’ claims arising from certain catastrophic events, such as windstorms, earthquakes, fires, or floods. H.R. 2668 currently has 8 cosponsors and is in the House Committee on Ways and Means.The Homeowners Insurance Availability Act, H.R. 846, wasintroduced by Representative Ginny Brown-Waite [R-FL] on February 16, 2005, and currently has 19 cosponsors (including Rep. Farr and Rep. Sherman) and is in the House Subcommittee on Housing and Community Opportunity. The bill will implement a reinsurance coverage program for residential property losses to homes and the contents of apartment buildings, caused by “covered perils”, available only through contracts for reinsurance coverage purchased at regional auctions. The bill will create a “Disaster Reinsurance Fund” to be established within the U.S. Department of the Treasury. The fund would be financed primarily from the sale of contracts for reinsurance coverage to insurance companies. “Covered perils” are defined as: 1) earthquakes, 2) perils resulting from earthquakes, such as fire and tsunamis, and 3) tropical cyclones having maximum sustained winds of at least 74 miles per hour, including hurricanes and typhoons.Additionally, Representative Ginny Brown-Waite [R-FL] introduced a new Homeowners Insurance Availability Act, H.R. 4366. The major change between H.R. 4366 and her original H.R. 846 is that it shifts the reinsurance coverage program from being established within the U.S. Department of Treasury to State operated insurance companies (each company must have a majority of the members of their governing body be public officials). TheFederal government would establish a smaller program to help supplement the State run programs, however, much of the burden would be shifted to each state, which would be required to develop these programs instead of the Federal government.4. Hearings on Depreciation. On July 21, 2005, the Senate Committee on Finance held a hearing on asset depreciation titled, “Updating Depreciable Lives: Is There Salvage Value in the Current System?” The primary focus of this hearing wasfor Committee members to hear experts on the current depreciation laws. The last change made to the laws was back in 1993, which only lengthened the life for structures largely as a revenue offset measure. With new technology being implementedevery year by business, the depreciation life of an asset is becoming ever more distant from its actual applicable usage. A primary cause of this stems from a 1988 law passed by Congress to remove the Treasury Department’s authority to assignclass lives. Business assets utilized by REALTORS® which may require reclassification so that the assets’ depreciation and economic life are more congruent are BlackBerry® devices, computers, computer programs, and other new technologies. Currently there is no legislation to address this issue and further hearings were delayed due to the need to focus on issues arising from Hurricane Katrina. However, it is likely that Congress will revisit this issue either by itself and/or within the context of tax reform.
5. Foreign Investment in Real Property Tax Act (FIRPTA). Over the past several years as identity theft has become more of a concern for everyone, sellers have grown increasingly uneasywith providing their taxpayer identification numbers. The concern has become so great that some sellers are refusing to provide the required affidavit to the buyer or are providing an affidavit with the seller’s taxpayer identification number redacted. This creates a dilemma for buyer’s who may be liable for the sellers’ tax liability from the sale of the real property if they do not receive a fully completed sellers’ affidavit. C.A.R. believes a seller should be able to provide the information require by FIRPTA to escrow or another settlement provider as an alternative to providing that information to the buyer.In the January 2005 meetings C.A.R. adopted a policy which stated, “That C.A.R. in conjunction with N.A.R., ‘SUPPORT’ legislation that would permit a seller to provide the information required by the Foreign Investment in Real Property Tax Act (FIRPTA) to escrow or another settlement provider as an alternative to providing that information to the buyer.”NAR has presented proposed legislation to the House Ways and Means Committee Staff, and are working with them to finalize the wording. At this time, however, it is unclear what, if any, tax legislation this provision could be attached to.6. Tax Reform. On November 1, 2005 the President’s Advisory Panel on Tax Reform published their recommendations on how to reformthe federal tax code (the full report can be found at http://www.taxreformpanel.gov). As with any revenue neutral legislation, the elimination of a revenue stream or the lowering of a tax rate must be offset by the elimination of deductions and/or increase in tax rates in another area. A major target of the panel was the elimination of the Alternative Minimum Tax (AMT). Unfortunately, the panel’s suggested offsets would significantly affect REALTORS®. The panel recommended:
Elimination of the mortgage interest deduction on a second home
Converting the mortgage interest deduction on afirst home into a 15% credit, which would be capped at 125% FHA conforming loan limits (currently that would make $477,355 the maximum allowed)
Elimination of the deduction of state and local taxes (including property taxes)
Elimination of the deduction of interest from Home Equity Lines of Credit
A summary on Real Estate specific concerns from the report can be found at C.A.R. has been monitoring the movement of these recommendations as well as the reaction of Congress. So far the Congress and the Senate from both sides of the aisle, including Sen. Feinstein, Congressman Sherman, and Congressman Miller, have come out against any tax reform that would negatively impact homeowners. C.A.R. is also encouraging members of Congress to sign House Concurrent Resolution 272 which calls for opposing any attempts to change or reduce the mortgage interest deduction.Thus far, C.A.R.’s tactic has been successful. The major media outlets have constantly criticized the Panel’s blatant attack on homeownersand have shown the inequity of the entire proposal. Additionally, the Treasury Department may delay the release of its tax reform proposal by over a year. Originally, it was the intent of Sec. Snow and President Bushto have their first draft proposal ready to be presented to Congress by the January 2006 State of the Union. However, a recent CNN/Reuters article says that “several Republicans with close administration ties” are now saying the 2006 State of the Union will only discuss tax reform in the general sense with the actual proposal not coming out until 2007, after the midterm elections. If this is the case, then fighting the original tax proposal might be futile as the policy can be dramatically revamped while sitting in Treasury for over a year.7. Affordable Housing Tax Credit. In order to encourage the construction of affordable housing, proposed legislation has been introduced to create a tax credit for developers and investors. Representative Thomas Reynolds (R-NY) and Senator Rick Santorum (R-PA) have introduced legislation designed to increase affordable housing. H.R. 1549 and S. 859, the Renewing the Dream Tax Credit Act, would allow developers and investors who construct or substantially rehabilitate housing for low- and moderate-income families for purchase to claim up to 50% of the cost over a five year period. H.R. 1549 has 184 cosponsors and is currently in the House Committee on Ways and Means, and S. 859 has 15 cosponsors and is currently in the Senate Committee on Finance. C.A.R. and NAR support these bills and have asked members of Congress to cosponsor thislegislation.8. Eminent Domain Tax Relief. In the wake of the Supreme Court’s Kelo v. City of New London decision on eminent domain, Congress has responded with proposed legislation to address what they view as an incorrect ruling and an attack on individual property rights. Two of the bills would create a tax relief for the property owner for any compensation received for their property seized by eminent domain. H.R. 3268, the Eminent Domain Tax Relief Act, and H.R. 2980, the Eminent Domain Relief Act, would both exclude from property owners’ gross income for tax purposes any capital gain derived from eminent domain compensation. Both bills are currently in the House Ways and Means Committee. HR 3268 has 20 cosponsors and HR 2980 currently has no cosponsors. No movement has been made on either bill.9. REMIC. Legislation has been introduced in both the House and the Senate that would amend thesection of the IRS Tax Code governing commercial-mortgage-backed securities, also known as real-estate mortgage investment conduits (REMIC), allowing for modifications and/or changes to be made to the properties. Under current rules, a property owner would have to obtain a tax opinion before renovating space to accommodate a new tenant. If the tax opinion found that more than ten percent of the loan’s collateral would be changed, the renovation could not go forward. Under the proposed changes, this type of modification, as well as many others (e.g., selling an adjacent parcel, demolishing part of a building, etc.) would be able to go forward provided that the terms of the loan (e.g., maturation date, principal, etc.) do not change. As a result of these changes, more commercial loans will likely be securitized which will, in turn, increase the flow of capital to commercial development.H.R. 1010, the REMIC Modernization Act, was introduced by Representative Mark Foley (R-FL) on March 1, 2005. It currently has 29 cosponsors and is pending before the House Committee on Ways and Means. Its companion bill in the Senate, S. 580, was introduced on March 9, 2005, has 9 cosponsors, and is currently in the Senate Committee on Finance.10. Mortgage Insurance Premium Deduction. Under Current law, there is no deduction for private or government mortgage insurance payments, even when this insurance is required as a condition of sale. However, on December 8th the House pushed through their version of the budget reconciliation, called the “Tax Relief Act of 2005”. This bill included a PMI deduction only for newly originated loans for the year 2007 and only those making less than $100,000 (married or single) a year would be eligible for the full deduction. For people who earn more then $100,000 a year, there is a 10% reduction for every $1000 in gross income.C.A.R. supports a mortgage insurance premium tax deduction; however, C.A.R. has also taken the following position: “That C.A.R., in conjunction with NAR, ‘OPPOSE’ the introduction of income limitations on the proposed mortgage insurancededuction provisions of the Internal Revenue Code.”
11. Home Lead Safety Tax Credit Act. According to Congress, more than one out of every four housing units in the U.S. contains lead-based paint that poses a hazard. Legislation was introduced during the 1st session of the 109th Congress to encourage property owners to remove lead-based paint. Representative Wm. Lacy Clay (D-MO) introduced H.R. 453, the Home Lead Safety Tax Credit Act. This legislation would allow owners of residential properties built in the U.S. before 1978 to take a tax credit for costs incurred for lead-based paint removal performed by a certified lead abatement contractor. The property owner would be alloweda credit of 50 percent of the cost, capped at $1,500 per dwelling unit. The basis of the property would also be reduced by the amount of the credit taken. H.R. 453 has one cosponsor, and has been referred to the House Ways and Means Committee.
12. Tenant Improvements Depreciation. The one year provision that allowed for a landlord who made improvements to leased property in a nonresidential building to amortize the cost of those improvements over 15 years instead of the life of theunderlying property, i.e. 39 years was set to expire on December 31, 2005. Due to revenue constraints this provision was unable to be made permanent. However, in S. 2020, the “Tax Relief Act of 2005” theywere able to get a one year extension, through December 31, 2006. Senators Conrad (D-ND) and Kyl (R-AZ) have introduced S. 621, and Representative Clay Shaw (R-FL) has introduced H.R. 1663, both of which would make the 15-year life permanent. S. 621 was introduced on March 15, 2005. It has 4 cosponsors and is currently in the Senate Committee on Finance. H.R. 1663 was introduced on April, 14, 2005, has 27 cosponsors, and is currently in the House Committee on Ways and Means. S. 2020 has passed the Senate with the one year extension, but so far there has been no movement in the house. Congress is hoping to address this issue again in the 109th’s 2nd session and make these extensions retroactive.VII. Real Estate Finance IssuesA. Discussion/Reporting Items:
1. Predatory & Subprime Lending. A number of bills have been introduced in the 109th Congress that address the issue of predatory and subprime lending. One of the bills that has been mentioned as a vehicle for this issue should Congress decide to address it is H.R. 1295, the Responsible Lending Act. Introduced by Representatives Bob Ney (R-OH) and Paul Kanjorski (D-PA), this bill, also known as the Ney-Kanjorski bill, has gained the support and backing of lenders throughout the country because of its preemption ofstate laws addressing subprime and predatory loans.At the C.A.R. September 2005 business meetings, C.A.R. took the following position: “that C.A.R. ‘OPPOSE,’ and seek the support of NAR to ‘OPPOSE,’ H.R. 1295 because it includes:
-- A federal preemption of California’s subprime lending law; -- Federal requirements for a uniform mortgage broker license; -- A hard numerical threshold on debt to income ratio for borrowers; -- An extension of the Home Ownership and Equity Protection Act (H.O.E.P.A) to purchase money mortgages.”At NAR’s October business meetings, C.A.R. asked the Conventional Finance Committee to consider C.A.R.’s policy. The Committee referred the motion to the NAR Subprime Lending Working Group for consideration.H.R. 1295 has 38 cosponsors and has been referred to the Subcommittee on Housing and Community Opportunity.C.A.R.’s Equal Opportunity - Cultural Diversity Committee will look at non-legislative means which C.A.R. may utilize in educating and protecting buyers from predatory loans.2. Community Choicein Real Estate. Representative Ken Calvert (CA) and Senator Wayne Allard have reintroduced the Community Choice in Real Estate Act with the same bill numbers as the 108th Session of Congress, H.R. 111 and S. 98. H.R. 111 isin the House Subcommittee on Financial Institutions and Consumer Credit and has 251 cosponsors, including Representatives Baca, Berman, Bono, Capps, Cardoza, Costa, Cunningham, Davis, Doolittle, Eshoo, Farr, Filner, Gallegly, Harman, Herger, Honda, Hunter, Lantos, Lee, Lewis, Lofgren, Matsui, McKeon, Millender-McDonald, Miller, Miller, Napolitano, Nunes, Pombo, Radanovich, Roybal-Allard, Sanchez, Sanchez, Schiff, Sherman, Solis, Tauscher, Thompson, Waters, Watson, Waxman, and Woolsey. S. 98 has 26 cosponsors, including Senator Boxer, and has been referred to the Senate Committee on Banking, Housing, and Urban Affairs.In December, President Bush signed the Transportation, Treasury, and Housing and Urban Development spendingbill, which contained a one-year prohibition against the Federal Reserve Board and U.S. Treasury Department proposal that would allow big banking conglomerates to operate real estate brokerage, leasing, and property management businesses. This is the fourth consecutive year that Congress has enacted the prohibition, which CAR strongly supports.3. Terrorism Risk Insurance Program. On November 26, 2002, theTerrorism Risk Insurance Act (TRIA) became law and the Terrorism Risk Insurance Program was established under the U.S. Treasury Department in response to the September 11, 2001, terrorist attacks. Due to the terrorist attacks, it became extremely difficult (if not impossible) for owners of at-risk commercial properties to obtain insurance. In fact, many insurance companies began to insert terrorism exclusions into their insurance policies. The creation of this program meant that terrorism exclusions on existing insurance policies were removed and all policyholders had the ability to secure coverage for terrorism risk.In December, prior to Congress’ holiday recess, the U.S. House and Senate reached an agreement on extending TRIA. The legislation increases the point at which federal backstop assistance kicks in from $5 million this year to $50 million in 2006 and $100 million in 2007, and creates the President's Working Group on Financial Markets (which includes the Treasury secretary and the Chairs of the Fed and SEC).4. FDIC Proposed Preemption Rule for State-Chartered Banks. On October 14, 2005, the Federal Deposit Insurance Corporation issued a proposed rule on “Interstate Banking; Federal Interest Rate Authority.” The proposed rule would exempt a state-chartered bank’s interstate-branch from a host state’s laws. Instead, the state-chartered bank’s home-state laws would apply to the activities of the interstate branch, regardless of where it was located. For example, if a state-chartered bank from Arizona opened a branch in California, its California branch would only have to adhere to Arizona’s laws. This ruling stems from a Financial Services Roundtable petition requesting the preemption in light of the Office of the Comptroller of the Currency’s preemption rule from a few years ago.The preemption would apply to the state-chartered interstate branches to the same extent that federal preemption applies to federally chartered interstate branches. This includes laws pertaining to community reinvestment, consumer protection, fair lending, and establishmentof intrastate branches. Additionally, the FDIC has defined “activity conducted at a branch” as “an activity of, by, through, in, from, or substantially involving, a branch.” This broad definition will allow nearly all activity of an interstate bank to be preempted from the host state’s laws so long as they have a branch established in that state.C.A.R., NAR, state Attorney Generals, consumer-protection advocates and others have submitted comment letters in opposition to the FDIC ruling. Please see attached C.A.R.'s comment letter. (Comment Letter )5. Alternative Mortgage Products & Proposed Federal Guidelines. In an effort to ensure that “lenders should not encourage or accept applications from borrowers who clearly cannot afford the dramatically increased payments that are likely to result at the end” of an initial low-payment period for alternative mortgage products, the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Board), Federal Deposit Insurance Corporation (FDIC), Office of Thrift Supervision (OTS), and National Credit Union Administration (NCUA) have proposed guidelines on development, underwriting, compliance, and risk management for lenders who offer these products. Areas that the agencies are requesting comment onare (again these are only to apply to nontraditional loans, not conventional loans):
When should stated income be allowed for underwriting?
Should future income be taken into consideration? And if so, how can thisbe done? If this is the case should other future events be taken into consideration, such as higher interest rates?
The agencies’ guidelines pertaining to loan underwriting will address:
Appropriate borrower repayment analysis;
Potential for collateral-dependent loans;
Below market introductory rate;
Lending to subprime borrowers; and
Loans secured by non-owner-occupied properties.
The agencies’ guidelines pertaining to risk management will address:
Maintaining performance measures and management reporting systems that provide warning of potential or increasing risks;
Maintaining an allowance for loan and lease losses at a level appropriate for portfolio credit quality and conditions affecting collectibility;
Maintaining capital levels that reflect nontraditional mortgage portfolio-characteristics and the effect of stressed economic conditions on collectibility; and
Applying sound practices in valuing the mortgage-servicing rights of nontraditional mortgages
Finally, the guidelines will address consumer protection. Specifically, they will ensure that the borrower understands the terms of the loan, and that the institution has ensured that the consumer has been provided with clear and balanced information about the benefits and risks of the loan.C.A.R. leadership will work with staff to voice the Association’s perspective on the details of the proposal.
6. FHA Issuesa.. GAO Releases FHA Report. In November, 2005, the Government Accountability Office released a report on FHA-insured loans with down-payment assistance. FHA insured loans with down-payment assistance grew from 35 to almost 50 percent from 2000 to 2004. In 2000, 6 percent of FHA-insured loans received down-payment assistance from seller-funded nonprofits. This number rose to almost 30 percent in 2004. It was numbers such as these that prompted the House Subcommitteeon Housing and Community Opportunity to request the GAO study to evaluate the performance of FHA-insured loans with down-payment assistance.In FHA-insured loans where down-payment assistance was from a seller-funded nonprofit the study foundthat:
House-price appreciation rates were lower in states with a higher percentage of these types of down-payment assistance;
Sellers who participated in the down-payment assistance would raise the price of their homes to recover the required payments that went to the organization;
These homes would sell and appraise for 2 to 3 percent more than comparable homes;
Appraisers were unaware that down-payment source was from seller; and
Loans with down-payment assistance do not perform as well as loans without. This includes a higher delinquency and claim rate.
While FHA has internal controls and standards, the GAO report made recommendations on how the FHA may better manage its risk with these loans. These recommendations include:
FHA should change underwriting practice to show seller-funded downpayment as a seller inducement tothe sale;
Stricter underwriting standards because FHA’s portfolio is heavy with loans with downpayment assistance; and
Internal reviews that target lenders that do a high volume of loans with down payment assistance.
Congress has yet to act on the report. A copy of the report may be obtained at: http://www.gao.gov/docsearch/abstract.php?rptno=GAO-06-24b. FHA 2006 Loan Limits. Because the FHA loan limit ceiling is set at 87% of the conforming loan limit, the 2006 FHA loan limit was increased when the conforming loan limit for 2006 was increased. The newconforming loan limit for 2006 is $417,000. Therefore, the new FHA loan limit ceiling is $362,790. FHA loans limits are set at 95% of an area’s median home price. When that price is above theceiling it is considered a high-cost area, and their FHA loan limit is $362,720. For 2006, California has 25 counties that qualify as high-cost areas. For a complete list of FHA loan limits please click on the following Web-site: https://entp.hud.gov/idapp/html/hicostlook.cfmc. Five-Year FHA Hybrid ARMs. HUD has issued a final rule allowing FHA to insure five-year ARMs. The FHA-insured five-year ARM will have an annual interest rate adjustment cap of two percentage points, and a lifetime cap of six percentage points. This rule finalizes an interim rule HUD issued in March of 2005.d. FHA Single Family Loan Limit Adjustment. The FHA Single Family Loan Limit Adjustment Act, H.R. 176, was introduced on January 4, 2005, by Representative Gary Miller (CA) and has 17 cosponsors, including Calvert, Capps, Cox, Harman, Lee, Lofgren, Matsui, and Woolsey. The bill would raise the FHA loan limit to 100% of the conforming loan limit, which is currently $417,000. The FHA loan limit is currently at 87% of the conforming loan limit or $362,790. By raising the loan limit, it is hoped that the FHA program would be better utilized in high-cost states and would increase homeownership opportunities. H.R. 176 is currently in the House Subcommittee on Housing and Community Opportunity.e. FHA Zero Downpayment. On June 30, 2005, Representative Patrick Tiberi (R-OH) reintroduced the Zero Downpayment Pilot Program Act, H.R. 3043. This bill would authorize the FHA to create a zero-downpayment product for residential purchases. Borrowers would have to meet underwriting criteria, but their downpayment and closing costs could be financed into the loan. However, borrowers would likely pay a higher upfront premium and be required to attend pre-purchase counseling. It is thought that the creation of such a product would put FHA back on equal footing with traditional lenders who currently offer zero-downpayment loan products.f. FHA Temporary Mortgage Assistance. The Homeowners’ Emergency Mortgage Assistance Act, H.R. 378, was introduced on January 26, 2005, sponsored by Representative Chaka Fattah (D-PA) and has 8 cosponsors. Thebill would restore home-mortgage assistance through the FHA single-family mortgage insurance program. The main purpose of the bill is to permit the provision of mortgage payments on behalf of homeowners who, due to no fault of their own, are experiencingtemporary financial difficulties. Qualifying circumstances include: loss of job of a household member; salary, wage or earnings reduction of a household member; injury, disability or illness of a household member; divorce or separationin the household; and death of a household member. However, for a borrower to qualify there must be a “reasonable prospect” that he/she will be able to resume full mortgage payments no later than 36 months after the beginning of the period for which assistance payments are provided. In addition, borrowers cannot be more than 60 days in arrears on a residential mortgage within the 2-year period preceding the delinquency for which assistance is requested (unless they can demonstrate that the prior delinquency was the result of financial hardship beyond their control). For those who qualify, the HUD Secretary would make payment funds available through the Mutual Mortgage Insurance Fund. Payment includes amount of principal, interest, taxes, assessments, hazard insurance, any mortgage insurance or credit insurance premiums, and reasonable attorney's fees. These payments would be repaid to the MMI Fund with interest, according to a schedule agreed upon by the Secretary and the mortgagor.
7. VA & HUD Issuesa. 2006 VA Loan Limits.Effective January 1, 2006 veterans will be able to get no-down payment loans up to the full conforming loan limit of $417,000. The VA home loan program guarantees up to 25% of the national conforming loan limit and is often used by lenders in place of a downpayment on the mortgage.b. RESPA. HUDheld a series of RESPA Reform Roundtable discussions across the country during the months of July and August to receive input and information from the real estate community on possible changes to the Real Estate Settlement Procedures Act (RESPA). REALTORS® were represented at almost all of these meetings, ensuring that C.A.R. and NAR policy was presented and taken into consideration in any decision made by HUD. HUD had submitted a final rule to the Office of Management and Budget (OMB) in December 2003. It was strongly suspected that the final rule was similar to a proposed rule published in July 2002. Under the original proposal, a one-package approach to the Guaranteed Mortgage Package was suggested. This would allow lenders to blind bundle all closing-cost services and the loan together as long as they provided guaranteed interest rate and one total cost figure. C.A.R. worked with California’s congressional delegation to pressure HUD to withdraw their proposal, which they did on March 22, 2004.HUD had intended to propose its new rule by the end of 2005, however due to hurricane Katrina they have delayed issuing the proposed rule. Issues discussed at the roundtables were the possibility of single or double packaging of costs. This would include a safe harbor for Section 8 violations (i.e., kickbacks). HUD’s rationale for the safe harbor is that any savings from kickbacks made by one vendor to another would be passed on to the consumer. Attendants of these meetings correctly stated that not only would a Section 8 safeharbor NOT help to pass kickback savings onto the consumer, but quite the opposite. Additionally, it was pointed out that packaging is currently taking place within the market now, and that kickbacks may possibly take place now ONLY ifALL of the savings are passed onto the consumer. C.A.R. President Jim Hamilton, who attended multiple HUD RESPA Reform Roundtable discussions, stated that the current market is creating a competitive environment and that a Section 8 safe harbor package would only hurt consumers and decrease competition within the real estate business. Other attendees included representatives from the banking, mortgage broker, escrow, title, credit, and consumer advocacy community.c. American Veterans Homeownership Act. On June 16, 2005, Representative Paul Ryan (R-WI) introduced H.R. 2952, the American Veterans Homeownership Act. This legislation would:
Revise the definition of qualified veteran for purposes of the veterans’ mortgage bond program to include all veterans who served on active duty regardless of date of service.
Allow veterans to apply for financing under the bond program up to 25 years afterthe end of their active duty.
Revise volume limitations applicable to the issuance of such bonds in certain states.
This legislation would amend the rules which govern how the Qualified Veterans Mortgage Bonds’ proceeds are distributed. Under current law mortgage loans made with these proceeds may only be used for veterans who served on active duty before 1977, and who applied for the financing within 30 years of release from active service. These bonds are available in California, Alaska, Oregon, Texas and Wisconsin. H.R. 2952 currently has 38 cosponsors and has been referred to the House Committee on Ways and Means.
8. FannieMae and Freddie Maca. Fannie Mae & Freddie Mac 2006 Conforming Loan Limits. Fannie Mae’s and Freddie Mac’s conforming loan limit was raised to $417,000 for 2006. This represents a 16% increase over the 2005conforming loan limit of $359,650. It is estimated that 466,326 additional households will now be eligible for conforming loans.b. GSE Oversight & High-Cost Conforming Loan Limits. Congress has reinvigorated its attempt to write regulatory reform legislation amid continuing scrutiny of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks—the housing government-sponsored enterprises (GSEs). The effort to balance the generally accepted need for stronger regulation of the GSE’s financial structure and financial reporting without undermining the current federal housing finance system proved elusive in the 108th Congress. However, legislation introduced in both the House and Senate in the 109th is under active consideration, and is beginning to move through Congress.On October 26, 2005, the House passed H.R. 1461, the Federal Housing Finance Reform Act, on a 331-90 vote. Included in thebill were major victories for California REALTORS® and future homeowners. One victory was the inclusion of an amendment by Representative Gary Miller that would allow a newly created independent GSE regulator to set high-cost conforming loan limits by an area’s median home price, up to 150% of the national conforming loan limit. Currently, the conforming loan limit is $417,000; however, high-cost states such as Hawaii, Alaska, Guam and the Virgin Islands,are allowed a high-cost conforming loan limit of $625,500 (150% of the regular conforming loan limit). In addition, the legislation does not place a statutory restriction on the size of the GSE’s portfolios.On July 28, 2005, the Senate Committee on Banking, Housing, and Urban Affairs reported S. 190, the Federal Housing Enterprise Regulatory Reform Act. The Senate bill, unlike the House bill, would limit what the GSEs could hold within their portfolio, effectively limiting the portfolio size, and there were tough approval measures for new GSE programs. Most glaringly absent though was the lack of a high-cost conforming loan limit issue. Senator Jon Corzine (D-NJ) introduced a high-cost amendment, but it was forced to be included in a Democratic substitute bill that died in Committee along party lines. Subsequently, S. 190 was reported out of Committee along a party line-vote. It is very likelythat Senator Richard Shelby (R-AL) will seek a Manager’s Amendment to bring Democrats on board prior to S. 190 going to the Senate floor. C.A.R. is working with NAR to rally support among other high-cost states for a unified lobbying effort onthis issue, including a co-authored open editorial in local newspapers in multiple states, joint letters to Congress, and a multi-state fly-in to Washington D.C. by State Association Presidents to directly lobby Congress on this issue.VIII.Land Use & Environment IssuesA. Discussion/Reporting Items:
1. Eminent Domain. In the wake of the Supreme Court’s Kelo v. City of New London decision on eminent domain, Congress rushed to pass new legislation to protect the rights of property owners. The first major legislation to pass was H.R. 4128, introduced by Representative Sensenbrenner (R-WI). H.R. 4128 prohibits the use of federal funding for any project that uses eminent domain for economic development. The only exception is when eminent domain is used for public use (roads, infrastructure, etc…). Tax base, tax revenue, and employment cannot be used as reason for a public use. H.R. 4128 was introduced on October 25, 2005 and passed by the House on November 3, 2005.The Senate has introduced two similar bills, S. 1895, introduced by Senator Ensign (R-NV) andS. 1883, introduced by Senator Hatch (R-UT). S. 1895 currently has 2 cosponsors and is in the Committee on Finance. The language in S. 1895 is similar to that of H.R. 4128. S. 1883 currently has 2cosponsors and is in the Committee on Environment and Public Works. S. 1883 aims to find a better form of dispute resolution when eminent domain is used. It calls for the right for multiple appraisals, says that all forms of mediation must be used before eminent domain, and has the Federal government and each state create an “Office of Property Rights”.At the September 2005 C.A.R. Expo, the Land Use and Environmental Committee passed an actionitem that stated: “That C.A.R appoint a Task Force to develop policy in response to pending state and federal legislation proposed in response to Kelo v. New London.” At the October 2005 NAR Expo, NAR’s Land Use, Property Rights & Environment Committee took the position that: “The federal government should not establish criteria for the use of eminent domain by state and local governments. Each state should establish its own rules and lawsgoverning eminent domain without interference from the federal government.”2. Endangered Species Act. The federal Endangered Species Act, which protects endangered and threatened species and their habitats, can delay or prevent any type of land development that might harm a protected species or its habitat.
REALTORS® support amendments to the Endangered Species Act that recognize the economic impact in designating and recovering endangered species, provide incentives toencourage species protection and compensate private property owners when they have been wholly or substantially deprived of the economic value of their property.
In the 1st session of the 109th Congress two efforts were made to amend the Endangered Species Act (ESA). The first, introduced by Representative Dennis Cardoza (D-CA) was H.R. 1299, the "Critical Habitat Enhancement Act." This REALTOR®-supported ESA reform bill would give greater deference to economic considerations in the designation of critical habitat and to existing citizen and government efforts to protect and recover species. It currently has 29 cosponsors and is in the House Committee on Resources. The committee has asked for an executive comment from the Department of the Interior and they are still waiting for a response.The other legislation was H.R. 3824, “Threatened and Endangered Species Recovery Act of 2005 (TESRA)”, sponsored by Representative Richard Pombo (R-CA). TESRA would revise various provisions of the ESA relating to determinations of endangered or threatened species, recovery plans for such species, and the role of states and private property owners in protecting such species. TESRA looks to find a balance between the needs to protect endangered species and the needs for responsible development. In an unusually swift manor, H.R. 3824 was introduced onSeptember 19, 2005 and passed by the House just 10 days later. The bill now sits in the Senate and no indication has yet been given as to when the Senate will pick up this issue.Additionally, the U.S. Fish and Wildlife Service (FWS) has proposed rules to codify its current "No Surprises" policy. This policy encourages property owners to voluntarily preserve endangered species habitat, with the promise that additional land for habitat would be designated only under certain special circumstances, such as a finding that an endangered species actually lives on the property. REALTORS® support codifying the "No Surprises" policy because it is a viable incentive for landowners to voluntarily develop habitat conservation plans. An FWS decision is expected soon.IX. New BusinessX. Adjournment
