Agenda Summary Federal Issues Committee Sheraton Grand Hotel Grand Neve Ballroom – Gardenia Room Sacramento, CA Thursday, June 7, 2007 3:00PM – 5:00 PMPresiding: Malcolm Bennett, Chair J. Michael Roberts, Vice-Chair Jeanne Garde, Vice-Chair Susan Tilling, Executive Committee Liaison Heath Hilgenberg, NAR Committee Representative Paul Cardus, GAD Liaison
C.A.R. Staff: Matt Roberts, Federal Governmental Affairs Manager Jeff Keller, Public Policy AnalystI. Opening Comments: Malcolm Bennett, ChairII. Report of Action Items from ReportingCommitteesA. Real Estate Finance B. Taxation C. Land Use and Environment D. Equal Opportunity – Cultural Diversity E. Housing Opportunity F. Commercial InvestmentIII. First Impression Issues A. Action Items1. Net Neutrality The idea of net neutrality is that the internet is open to all that are able to access it and that everybody able to access the internet has equal availability to services and information. Net neutrality principles have guided the development of the Internet to date. These principles call upon designers of the individual networks, that together make up the Internet, to create their piece of theInternet in a manner that allows any computer connected to the network to send information to any other computer on the Internet with minimal interference. A network designed to be perfectly neutral does not discriminate against any other network, hardware, software, language, culture, disability, or types of data.
The outcome of net neutrality could impact the future functionality of the Internet. Proponents of regulations fear that if allowed to continue, the Internet will become a utility that has various tiers of access depending on what services a user is willing and/or able to pay for. Opponents believe that the free market will continue to maintain the openness of the Internet as it is seen and used today with greaterexpansion of possibility by private innovation. REALTORS® concerns are that there are not increased costs to real estate firms as they maintain their presence on the Internet and work to expand their access to consumers. (Please see attached issues briefing paper )2. Patent Reform There is currently a push in the 110th Congress to have fairly large reforms made to the U.S. patent system. These major reforms to the patent system are dividing the business community. High-tech industries, such as Dell and Microsoft, as well as financial service companies, support the reforms because theyfeel the current system is overburdened with legal costs and challenges to patents. Drug manufacturers and other manufacturers oppose the changes because they fear it would strip away their abilities to protect and enforce their patents. (Please see attached issues briefing paper)
B. Discussion/Reporting Items1. Methamphetamine Labs Sadly, the issue of methamphetamine labs is becoming an issue for REALTORS® who are trying to sell houses that had to undergo extensive clean-ups after it was discovered that the house was used as a meth lab. Meth labs contain highly toxic chemicals and requireextensive clean-ups and testing before bring declared safe for people to re-occupy the house.On February 7, the House passed H.R. 365, the Methamphetamine Remediation Research Act of 2007, by a vote of 426-2. H.R. 365 was introduced by Rep. Gordon (D-TN). H.R. 365 requires: EPA to develop model, voluntary, health-based cleanup guidelines for use by states and localities; authorizes the National Institute of Standards and Technology to initiate a research program to develop meth detection equipment for field use; and requires a study by the National Academy of Sciences on the long-term health impact of exposure to meth labs on children and first-responders.
The Senate companion bill, S. 635 was introduced by Senator Baucus (D-MT) on February 15, 2007 and is currently in the Senate Committee on Environment and Public Works with one cosponsor
2. Data Security C.A.R. Policy:In January 2007, C.A.R. took the following policy: “That C.A.R., in conjunction with NAR, pursue a small business exclusion in any federal data privacy legislation and oppose federal preemption of state data privacy laws.” One of the issues that started in the 109th Congress and is carrying over into the 110th Congress is the issue of data security. Once again, there are multiple competing bills and issues of turf battles; as upto six separate committees may hold hearings concerning data security. At this point, it does not seem clear if cooler heads will prevail and allow for one compromise data security bill to pass through the committees and the Congress.
The largest debates still center around whether data security bills should preempt state laws and how much consumer protection should be allowed. Businesses want one national policy so it is easier for them to operate in every state. Consumer rights groups fear that federal preemption will weaken some states which currently have stronger data protection laws, such as California.Other debates center on when notification of a breech must be sent out (if there is evidence of a breech or potential that there was a breech), what rights consumers have to correct errors on their credit reports, and how long and who pays for freezes on credit reports ifa breech occurs.Currently, two data security bills have been marked out of committee in the Senate. S. 495, the Personal Data Privacy and Security Act of 2007, was introduced by Senator Leahy (D-VT) and has six cosponsors. On May 3, 2007 S. 495 was marked up and passed out of the Senate Judiciary Committee by a voice vote. S. 495 would preempt state laws and would require notification when “there is a reasonable basis to concludea breech has occurred”. It also allows consumers access to their credit reports and information when a breech occurs.S. 1178, the Identity Theft Prevention Act, was introduced by Senator Inouye (D-HI) and has 4 cosponsors. S. 1178 was marked up and passed out of the Senate Committee on Commerce, Science, and Transportation on April 25, 2007 by a voice vote. S. 1178 would preempt state law and would require notification if “the breech creates a reasonable risk of identity theft” and would allow for consumers to put a freeze on their credit report when a breech occurs.In the House the Democrats have yet to propose their version of data security. Rep. Frank (D-MA) has said he will introduce a data security bill during the 110th Congress. Currently, Rep. Price (R-GA) has introduced a Republican data security bill, H.R. 1685, the Data Security Act of 2007. H.R. 1685 currently has no cosponsors and is in the House Financial Services Committee. H.R. 1685 would preempt state law and says notification in only needed is “an entity determines that personal information involved in a breech of security is reasonably likely to be misused in a manner causing substantial harm”.
3. Trigger Lists Trigger lists are generated when a credit inquiry is made, usually upon application for amortgage or other credit product. The credit reporting bureaus compile information (prescreening) and sell it to other lenders or lead generators who then use it to contact consumers with solicitations. The process is permitted under the FairCredit Reporting Act as long as a “firm offer of credit” can be made. In the case of phone solicitations, FTC and credit reporting industry sources, assert that lenders and lead generators must comply with the “Do Not Call”as well. The FTC is encouraging REALTORS® and consumers to file complaints with the FTC if they encounter unfair or deceptive trade practices relating to the use of trigger lists by lenders and/or lead generators.Individuals may “opt out” of receiving prescreened offers of credit by visiting www.optoutprescreen.com or may learn more by going to the FTC Facts Brochure at www.ftc.gov/bcp/conline/pubs/credit/prescreen.pdf. 4. Retirement Visas At the NAR 2006 November business meetings, the issue of creating a new visa designation to allow retired foreigners to stay in the U.S. so they may fully use their U.S. property was raised. The argument was that current visa restrictions required them to return to their home country and was thus a deterrent to them purchasing properties in the U.S.At the January 2007 meetings, C.A.R. took the following policy, “That C.A.R. recommends to NAR that NAR continue to explore the issue of creating a new U.S. retirement visa designation.”At the May 2007 NAR meetings the following policy was taken: “The committee is not in favor of pursuing the creation of a new retirement visacategory, i.e. ‘Silver Card’, that would allow retired foreign nationals over the age of 55 years, who own a personal retirement home in the United States and meet other qualifications, to reside I the United States for periods of time that exceed the timeframe now allowed”An outside consulting firm was hired to determine the feasibility of having such a visa designation added to possible upcoming immigration reform legislation. While the firm decided that there was potential for passage of immigration reform during the 110th Congress, NAR decided that the cost and timing are not appropriate to further pursue this issue.IV. Taxation IssuesA. Action Items:1. Energy, Natural Disaster, and Natural Resource Tax Incentives One of the most common ways to promote a legislative goal is to offer tax incentives to encourage private capital investments. Often time the reforms or changes requested can be expensive and the tax incentives help offset those costs. In May 2007 NAR took policy concerning the potential for tax incentives to help promote energy conservation in realproperty, flood and natural disaster mitigation, and support of natural resources and wildlife. (Please see attached Issues Briefing Paper )B. Discussion/Reporting Items:1. FIRPTA C.A.R. Policy:In the January 2005 meetings C.A.R. adopted policy which stated, “That C.A.R. in conjunction with N.A.R., ‘SUPPORT’ legislation that would permit a seller to providethe 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.”Over the past several years as identity theft has become more of a concern for everyone, sellers have grown increasingly uneasy with providing their taxpayer identification numbers. The concern has become so great that some sellers are refusing to provide the required non-foreign affidavit to the buyer or are providing an affidavit with the seller’s taxpayer identification number removed. This creates a dilemma for buyers’ who may be liable for the sellers’ tax liability from the sale of the realproperty if they do not receive a fully completed sellers’ affidavit.On April 17, 2007 the House passed H.R. 1677, The Taxpayer Protection Act by a vote of 407-7. Included in H.R. 1677 was the FIRPTA fix that C.A.R. has been working on. C.A.R. has been working diligently with NAR and House Ways & Means staff on getting a FIRPTA fix introduced that would allow the seller to provide the non-foreign affidavit to a settlement provider instead of the buyer. As you know, this has been a long standing issue that has had trouble gaining traction in Congress.Thanks to the help and efforts of Congressman Mike Thompson (D-CA), C.A.R. was able to get language attached as an amendment to H.R. 1677. H.R. 1677 was voted out of the Ways & Means Committee on March 28th with the FIRPTA amendment attached. H.R. 1677 was introduced by House Ways & Means Chairman Rangel (D-NY) and Oversight Subcommittee Chairman Lewis (D-GA).C.A.R. and NAR are still working on some minor changes to the language. However, these changes will have to be in the Senate version ofthe bill as H.R. 1677 was put on the House calendar under suspension rules, which means no amendments were allowed. 2. Mortgage Cancellation C.A.R. Policy:C.A.R. has previously taken the policy: “that C.A.R., in conjunction with NAR, pursue changes in federal law or regulation to exempt from unfair taxation relief of indebtednessincome from short sales of principal residences.”In today's market, some individuals are "upside down" on their mortgages (i.e., they owe more on the mortgage than the fair market value of the property). If they should sell the property and be unable to repay the full amount of any outstanding mortgage debt, the lender may forgivesome or the entire shortfall (this is known as a "short sale"). Similarly, in foreclosures a borrower might be forgiven some portion of a mortgage debt if the lender is not able to satisfy the mortgage liability from the sale proceeds.When some portion of a debt is forgiven, income tax is imposed on any amount that a lender forgives.Under current law, if a mortgage lender forgives or cancels a debt, the taxpayer/borrower is required to recognize income and pay tax on theamount of the canceled debt. Exceptions are provided to this rule in the case of bankrupt or insolvent taxpayers. Rules are also provided that defer taxation for relief of debt on loans for commercial and investment property, but the tax laws have never extended relief to an individual who sells a personal residence for an amount that is less than the outstanding debt on the property.
Example: Assume that an individual purchased a home for $450,000. At the time of a subsequent sale, the outstanding mortgage balance might be $415,000. If the home sells for $400,000, the individual has incurred a non-recognizable capital loss of $50,000 and is short $15,000 to pay off the outstanding mortgage. If the lender forgives this $15,000 debt, then the homeowner must recognize the $15,000 as ordinary income and pay tax on it.
Legislation is needed to assure that mortgage debt that is canceled or forgiven is not treated as income and taxed on primary residences. The House hasintroduced H.R. 1876, the Mortgage Cancellation Relief Act of 2007, which would allow for residential mortgage debt relief to be excluded from gross income. H.R. 1876 is currently in the House Ways & Means Committee and has one cosponsor.
Mortgage cancellation relief would only apply to first mortgages, not to “piggy-back” second mortgages, on a primary residence. Additionally, the relief would only apply to the original purchase price if a loan has been refinanced with a “cash out” option.At the time when a family is suffering from the loss of their home it is unfair to further punish them by forcing them to pay income tax on proceeds that were never realized.3. 1031 Exchanges The like-kind exchange provisions of Internal Revenue Code Section 1031 permits a taxpayer to defer taxation on capital gains if within 45 days of selling a "relinquished property," the taxpayer identifies a "replacement property" and closes on the acquisition of that property within 180 days of the sale of the “relinquished property”. The regulations for these rules provide a roadmap for securing the benefits of deferral and a well-established body of law governs these transactions.
The exchange rules have not been modified since 1991. Two developments; however, have brought new scrutiny of the rules. The first of these is an effort to repeal the exchange rules that has been mounted by farmers located primarily in Iowa and Illinois. They believe that the exchange rules have the effect of driving up the price of farmland. A second development is the rise of the Tenant-in-Common (TIC) market since 2002.
In 2007, the Senate Finance Committee is likely to review several aspects of Section 1031. There are numerous areas they will examine, ranging from the basic to the more complicated of matters concerning 1031 exchanges. The more basic issues to be examined are whether the IRS Form 8828, which is used to figure and report the recapture tax on a federal mortgage subsidy, should be made a mandatory filing; and examining how long a 1031 exchange must be held beforea replacement property can be purchased. They may also examine the issue of withholdings on boot. Boot is any part of a 1031 exchange that is not like-kind property. This can be other property or cash.
More complicated issues that may be addressed are the deferral of fees and collection of fees involved in TIC properties. The fees associated with TICs are said to range as high as 25% of the acquisition cost. Congress may examine whether taxpayers engaged in exchanges should be permitted deferral treatment for these fees. Congress will also examine whether deferral treatment is appropriate for collectibles.
C.A.R. will lobby tokeep like-kind exchanges unchanged and retain the current laws. C.A.R. will also continue to lobby to have the 45-day deferral for finding a “replacement” property removed in accordance with our 2004 policy.Additionally, there have recently been some possibly unlawful activities in the like-kind exchange marketplaces that are creating challenges. There have been some failures of qualified intermediary (QI) (also known as exchange accommodators) companies. Individuals and investors with funds on deposit with these companies have been unable to complete their exchanges in a timely manner because the funds had, in effect, disappeared. Those individuals couldface serious tax consequences because of their inability to satisfy the 180-day test. Real estate professionals associated with those transactions are thus exposed to additional liabilities as well.NAR’s Tax Committeehas decided to form an internal, informal task force that will explore issues such as risk management for real estate professionals who make QI referrals, new disclosures applicable to QIs, additional restrictions of QI funds, state v. federal regulation, and increased fiduciary standards for QIs. The task force may report their recommendations during the November NAR meetings. Additionally, NAR staff will monitor the activities of the Federation of Exchange Accommodators as they work with the IRS on seeking relief for those taxpayers unable to satisfy the 180-day test because of these market failures.4. Mortgage Insurance Premium Deduction C.A.R. Policy:“That C.A.R., in conjunction with NAR, ‘OPPOSE’ the introduction of income limitations on the proposed mortgage insurance deduction provisions of the Internal Revenue Code.” In the last hours of the 109th Congress, H.R. 6111, the Tax Relief and Health Care Act of 2006, was passed. Inside this tax extenders and Medicare bill, a new tax deduction for mortgage insurance premiums was included. This is a one-year-only provision that would allow some 2007 home buyers to deduct the cost of their mortgage insurance premiums (PMI). In order to qualify, the loan must originate in 2007 and can be applied to private mortgage insurance, FHA insurance, and VAand Rural Housing premiums as well. The new deduction is available to those with less than $100,000 adjusted gross income on a joint or single tax return ($50,000 for married filing separately) and phases out for incomes above $110,000($55,000 for married filing separately). Individuals who claim the deduction are not permitted to prepay premiums that are otherwise due after 2007. Currently this provision expires on December 31, 2007.
H.R. 1813 was introduced by Rep. Levin (D-MI) on March 29, 2007. H.R. 1813 currently has 19 cosponsors and is in the House Ways & Means Committee. H.R. 1813 would allow for PMI to be permanently deductible and would remove any income limitations. The Senate companion bill is S. 1416, which was introduced by Senator Smith (D-OR) on May 16, 2007. S. 1416 is currently in the Senate Committee on Finance and has seven cosponsors. 5. Employee Housing Downpayment Assistance C.A.R. Policy: “That C.A.R., in conjunction with NAR, support income tax-based incentives for employer-assisted housing as part of a housing affordabilitystrategy.”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 income to the employee. In January 2007 C.A.R took the position that: “C.A.R., in conjunction with NAR support income tax-based incentivesfor employer-assisted housing as part of a housing affordability strategy.”H.R. 1850, Housing America’s Workforce Act, was introduced by Rep. Velazquez (D-NY) on March 29, 2007. H.R. 1850 has been referred to the House Ways & Means and the House Financial Services Committees. H.R. 1850 currently has seven (7) cosponsors, including Rep Baca and Rep. Loretta Sanchez. S. 1078, Housing America’s Workforce Act, was introduced by Senator Clinton (D-NY) on April 10, 2007. S. 1078 is current in the Senate Committee on Finance and has six (6) cosponsors.
H.R. 1850 and S. 1078 would allow an employer a business tax credit for up to50% of the qualified housing expenses paid for the benefit of their employees. The credit would be limited to the lesser of $10,000 or 6% of an employees home purchase price, or up to $2000 in rental assistance. The housing assistance would also be excluded from the employee’s gross income.6. Qualified Veteran Mortgage Bonds As home prices have risen in California, only a few select veterans in California and four other states have benefited from low-interest rate mortgages secured by Qualified Veterans’ Mortgage Bonds (QVMB). The bonds are tax exempt government obligations and are backed by the full faith and credit of the issuing state. Veterans who finance their homes through QVMBs can receive an interest rate of .50-.75 percentage points less than that of a conventional loan. Under current law, to qualify for a QVMB a veteran must have served on active duty prior to January1, 1977 and applied for financing before their thirty-year anniversary of leaving the service. This prohibits veterans of more recent or ongoing military conflicts such as Operation Iraqi Freedom, Operation Enduring Freedom, Kosovo, Somalia, and the 1991 Persian Gulf War from being able to benefit from these loans.H.R. 551, Home Ownership for America’s Veterans Act of 2007, was introduced on January 18, 2007 by Rep. Davis (D-CA). H.R. 551 is currently in the House Committee on Ways & Means and has 47 cosponsors, including 40 from California. H.R. 551 would eliminate the requirement that you serve before January 1, 1977 and replaces it with “who applied for the financing before the date 25 years after the last on which such veteran left active service.” It would also use the Conventional Mortgage Home Price Index compiled by Freddie Mac to help determine inflation rates and after 2010 the limit of the amounta state is allowed to use would be adjusted based off this inflation rate (multiply the limit by the inflation adjustment factor)
7. Tax Reform and AMT The issue of fundamental tax reform has largely died down since the release of the recommendations by the President’s Advisory Panel on Tax Reform. At this time, most talks concerning fundamental tax reform are taking place in the Presidential debates. Nonetheless, discussions concerning an AMT patch, AMT reform, and the repeal of the AMT are still hotly being debated in the Congress.So far no consensus has come out on what to do concerning the AMT. Possible solutions include: a one-year patch (at a cost of around $55 billion), full repeal without offsets (projected to cost $1.2 trillion over ten years) full repeal with offsets (the elimination of other tax breaks to off-set the costs), and reforming the AMT by raising the tax bracket (topping out at 39.6%) and raising the trigger level so that no couple making less than $250,000 would be caught in the AMT.
No firm stances have been developed yet and both parties claim that the AMT is one oftheir top tax priorities and are diligently working on a solution. As is the case with most taxation issues, the major issue is what to do about the lost revenue from either modifying or repealing the AMT. Most pundits believe that the Democrats will be forced to do a one or two year patch to the AMT in order to keep more middle class families from falling prey to this stealth tax, but still staying within the budget limitations and PAYGO. C.A.R. will continue to monitor issues concerning the AMT and keep you updated on any changes.
8. Internet Taxation C.A.R. Policy:In 2000 C.A.R. took the policy that there should be no state/local taxes on internet access and that there should not be federal efforts to preempt states’ efforts to address sales and use tax issues. In 1998 the Internet Tax Freedom Act was passed, which created a moratorium on federal, state, and local government from imposing taxes on internet access, creating “internet only taxes” such as taxes on bandwidth or emails, and also restricted multiple taxes on e-commerce. Since 1998 the moratorium has been extended twice and is currently set to expire in November 2007.
There are two tracts of legislation concerning internet taxation. The first is an extension of the moratorium. S. 1453 was introduced by Senators Carper (D-DE) and Alexander (R-TN) on May 23, 2007. S. 1453 would extend the moratorium for four more years and eliminate a tax loop-hole that allowed carriers to bundle internet access with other features, all tax free.The second tract would make the ban permanent. H.R. 1077, the Internet Tax Freedom Act of 2007, was introduced on February 15, 2007 by Rep. Campbell (R-CA). H.R. 1077 is currently in the House Subcommittee on Commercial and Administrative Law and has 28 cosponsors. H.R. 1077 would make the moratorium permanent.9. Tenants in Common (TICs) TICs (tenant in common interests) are fractional interest or co-ownership in real estate. The ownership structure, in 2002, qualified as a valid option for 1031 tax deferred exchange purposes and since then the TIC industry has grown exponentially.TICs are generally brokered in two ways, as a real estate offering and as a securitized offering. The distinction between a securitized TIC and a non-securitized TIC largely depends on how active investors are in the management of the property and the extent to which the sponsor retains an interest in the property. When TICs are securitized they are subject to federal and state securities regulation, including the requirement that persons promoting the purchase of them have the necessary securities license. Because securitized TICs also involve the ownership of real property interests, their sale is also subject to state real estate license laws, which require a real estate license to engage in the promotion and sale of real estate.
Currently, there is a lot of confusion among REALTORS® about the TIC market place. More than a few REALTORS® have participated in securitized TIC transactions only to find that they could not be compensated for their work. Furthermore, a number of REALTORS® may not be aware of the risks investors might face in purchasing a securitized or non-securitized TIC.NAR is in discussions with the SEC on defining a role for real estate professionals in the brokerage of securitized TIC interests, whereby they can provide real estate services and derive compensation. NAR’s main focus is getting formal recognition from the SEC allowing REALTORS® to work in all areas of TICs. REALTORS® can advise on non-securitized TICs as long as the transaction cannot be interpreted as a sale of a security under the Supreme Court’s “Howey Test”. If the REALTOR® is found to have sold an unregistered security, they can face significant problems and may not be covered under errors and omissions coverage.
The “Howey Test” is based off a ruling where the court determined that a security is where there is an investment of money in a common enterprise with profits to come solely from the efforts of others. In order for the TIC to be non-securitized the investor must have a vote in the overall management of the property, but may not directly manage the property. So when a stock is purchased you are investing money, but have no control over the company, which classifies that stock as a security. In a TIC, as long as you have a vote/partial control on how the overall management of the property is done, the property is not currently classified as a security. 10. Small Business Tax Package Included in the attempts to have the minimum wage increased, there is an ever changing package of tax incentives for small businesses attached. Included in versions of these tax packages are twotax concerns for REALTORS®. The first is the 15-year leasehold improvements. Unless renewed, this deduction will expire again on December 31, 2007 and the recovery period for leasehold improvements will return to 39 years. Currently, the language in the tax package would extend the leasehold improvements deduction until December 31, 2008.Also included in the small business tax package is language that would extend and expand the deduction that permits owners of small businesses to deduct, rather than depreciate, the cost of up to $100,000 in new equipment. The provision would expand the deduction to a $125,000 allowance and would phase out when a business had $500,000 of income.
11. Tax Gap The Internal Revenue Service developed the concept of the tax gap as a way to gauge taxpayers’ compliance with their federal tax obligations. The tax gap measures the extent to which taxpayers do not filetheir tax returns and pay the correct tax on time.
The tax gap can be divided into three components: non-filing, underreporting and underpayment.Currently, Congress is pushing the IRS to close the “tax gap” in order togenerate more revenue to cover the cost of programs. While no official decisions have been made as to how to close the “tax gap”, it seems that the ideas could mean more compliance rules being issued, which could prove to be a further burden on small businesses, as well as an increase in audits.V. Real Estate Finance IssuesA. Discussion/Reporting Items1. Subprime and Predatory Lending C.A.R. Policy: C.A.R. has addressed the issue of subprime and predatory lending multiple times in the past, including the opposition to federal preemption of state laws and the creation of a separate mortgage brokerage license requirement. Additionally, C.A.R. supports strong consumer protection laws, but those laws must not be so stifling as to hinder the flow of capital to the markets.While subprime legislation will originate from the House Financial Services Committee orthe Senate Banking, Housing and Urban Affairs Committee, a number of Congressional Committees and Subcommittees have held hearing pertaining to subprime lending, predatory lending and the rise in foreclosures. A number of legislative ideas have been discussed, including federal preemption of state subprime and predatory lending laws, bail out of home owners, refinance assistance for homeowners, and other ideas.It is still too early to know what final legislation will look like and while both the Senate and the House are likely to pass bills, it is unclear whether they will be able to agree on a final bill to send to the President’s desk.On May 3, 2007, Senator Chuck Schumer (D-NY) introduced S. 1299, theBorrower’s Protection Act of 2007. If passed, S. 1299 would:
appropriate $300 million for community groups that specialize in foreclosure prevention,
regulate mortgage brokers and originators under the Truth in Lending Act,
create standards for brokers and originators to assess a borrower’s ability to repay a mortgage, and
hold lenders accountable for brokers and appraisers.
2. Supreme Court Hands Down OCC Ruling In April, the Supreme Court ruled 5-3 that subsidiaries of federally charteredbanks are subject to the oversight and regulations of the federal government and not the states. In the ruling of Waters v. Wachovia, the Court found that “A nation bank may engage in real estate lending through an operating subsidiary, subject to the same terms and conditions that govern the bank itself; that power cannot be significantly impaired or impeded by state law.” The ruling will allow national bank subsidiaries to no longer comply with state consumer protection laws and licensing.REALTORS® had been hoping the Supreme Court would rule against the OCC and Wachovia, and recognize that the National Bank Act does not extend to subsidiaries of national banks. NARhad filed a brief with the Sixth Court of Appeals in support of state regulation of national bank subsidiaries.3. National Disaster Insurance C.A.R. Policy:C.A.R. believes Congress should look to implement legislation that will create a government backstop for private insurance providers, create incentives for homeowners to take steps to mitigate the effects of a natural disaster on their property, and update insurance regulations and the tax code so that insurance companies may better prepare for disasters.The intensity of large natural disasters in recent years has made the acquisition of adequate homeowners’ insurance very difficult in some areas. Moreand more insurers are declining to write policies, canceling existing policies or increasing premiums on existing policies to the point where homeowners can no longer afford to make payments. Areas that have seen the largest increasesin insurance premiums are the gulf and east coast states with premiums increasing by as much as 12 times.In California it is only a matter of time until a large earthquake hits a highly populated area causing incalculable financial damage along with the personal casualties that follow such a tragedy. According to the California Insurance Commissioner, only 14 percent of California homeowners have earthquake insurance. Some can’t afford it while others believe the federal government will pay to rebuild their homes as it is doing after Hurricane Katrina.
C.A.R. believes Congress should look to implement legislation that will create a government backstop for private insurance providers, create incentives for homeowners to take steps to mitigate the effects of a natural disaster on their property, and update insurance regulations and the tax code so that insurance companies may better preparefor disasters. Some members of Congress have already introduced legislation on this issue; however, Barney Frank (D-MA), the chair of the House Financial Services Committee has asked Congressmen Klein (D-FL) and Mahoney (D-FL) to workwith all principals involved (including REALTORS®) in drafting legislation. Klein and Mahoney are expected to introduce their bill prior to the end of summer.4. Banks in Real Estate C.A.R. Policy:C.A.R. supports the separation of Banking and Commerce.In early 2001 the Federal Reserve and the U.S. Treasury Department proposed rules to expand the powers of national bank conglomerates. The agencies proposed allowing national bank conglomerates to engage in real estate brokerage and management, reclassifying these activities as financial in nature. C.A.R. and NAR strongly oppose the proposal, arguing that the Bank Holding Company Act of 1956and the Gramm-Leach-Bliley Act (GLB) of 1999 do not authorize banking firms to provide real estate brokerage and property management services, as these are non-financial activities. REALTORS® have supported the enactment of the Community Choice in Real Estate Act in previous sessions of Congress, which removes the powers of these agencies to regulate these real estate activities.C.A.R. and NAR policy supports the separation of banking and commerce. If permitted to engage in real estate brokerage and management, national bank conglomerates would have an unfair competitive advantage and inherent conflicts of interest would result.While the Community Choice in Real Estate Act has yet to pass, C.A.R. and NAR have been successful in getting Congress to block the Treasury from implementing its rule.The House has introduced H.R. 111 and the Senate has introduced S. 413 which would place a permanent ban on banksentering into real estate activities. Presently, H.R. 111 has 259 cosponsors and S. 413 has 20 cosponsors.5. Industrial Loan Companies C.A.R. Policy: C.A.R. supports the separation of Banking and Commerce.In 2006, in response to applications from Wal-Mart and Home Depot to become owners of industrial loan companies (ILCs), REALTORS®, bank trade associations, and many others voiced concerns to the Federal Deposit Insurance Corporation (FDIC) and Congress about mixing banking and commerce through the ILC statutory loophole that permits commercial firms to own this type of federally insured state bank. Congress is considering amending the Federal Deposit Insurance Act to close the ILC loophole.Responding to pressure by Congress and the regulators, Wal-Mart withdrew its application to charter an ILC. However, numerous commercial companies, including Home Depot, DaimlerChrysler, Ford Motor Company and Toyota are still pursuing owning an ILC.REALTORS® are supporting the enactment of H.R. 698, the "Industrial Bank Holding Company Act of 2007." H.R. 698 would prevent an ILC from being controlled by a commercial firm. On May 21, 2007, the House overwhelmingly passed H.R. 698 371-16.6. Flood Insurance C.A.R. Policy: C.A.R. supports reform of the NFIP
On March 26, 2007, Congressman Barney Frank (D-MA) introduced H.R. 1682, the Flood Insurance Reform and Modernization Act. The purpose of this bill is to financially stabilize the National Flood Insurance Program (NFIP). Following the 2005 hurricane season, the NFIP went $25 billion in the red and has yet to recover. Congress has extended financial assistance to the NFIP; however, that is only a temporary solution and C.A.R. is cautiously optimistic that a bill will be passed prior to the end of the 110th Congress.H.R. 1682 would:
Increase flood insurance coverage for residential property,
Provide coverage for necessary increases in living expenses, basement improvements, business interruption, and replacement costs of contents,
Increase borrowing authority for the flood insurance program,
Increase annual limitation on premium increases from 10 percent to 15 percent,
Provide funding for mitigation of severe repetitive loss properties, including demolition and rebuilding,
Amends RESPA to require good faith estimates to state that flood insurance coverage for residential properties is generally available, whether or not the property is located in an area having special flood hazards, and
Authorize a study by the GAO on the extension of mandatory flood insurance coverage purchase requirements to properties located in any area that would be designated as having special flood hazards but for the existence of a structural flood protection system.
7. FHA Issuesa. FHA Reform
C.A.R. Policy:C.A.R. supports increasing FHA’s loan limit to 100% of the conforming loan limit, allowing zero down mortgages, allowing FHA to set insurance premium using risk based pricing, and allowing FHA to insure zero down mortgages.On March 29, 2007, Maxine Waters introduced H.R. 1852, the expanding American Homeownership Act. The bill will attempt to expand the FHA’s ability to compete with the subprime market and regain market share. The reforms proposed include:
Increasing the FHA insurable limits. Currently, the FHA insures 95% of an area’s median home price with a ceiling of 87% of the conforming loan limit ($362,790) and a floor of 48% of the conforming loan limit. The legislation would increase theFHA limit to 100% of an area’s median home price capped at 100% of the conforming loan limit ($417,000), with a floor of 65% of the conforming loan limit ($271,050).
Making it so that condos are insured in the same manner as single-family homes.
Allowing for the coverage of zero-down loans. Currently, the FHA may only insure loans with a minimum of three percentdown.
Allowing the FHA to set its insurance premiums by risk.
H.R. 1852 has been marked up out of Committee and is expected to be brought to the House Floor for a vote prior to the end of this year.8. VA & HUD Issuesa. RESPA Reform C.A.R. Policy:C.A.R. supports a two-package approach to the Guaranteed Mortgage Package proposed by HUD for RESPA Reform.In June 2005, the Department of Housing and Urban Development (HUD) released its “roadmap to RESPA reform,” a continuation of its efforts to revamp the Real Estate Settlement Procedures Act (RESPA) regulations. A new proposal has been delayed after Secretary Jackson initially indicated it would be available in the spring.
HUD’s withdrawn 2004 RESPA rule would have put lenders in control of the entire real estate settlement transaction while operating under an exemption from Section 8’s anti-kickback provisions. The rule could have lead to increased concentration but less competition within the lending industry. Any regulation that moves an industry toward greater concentration should be viewed with considerable caution, as it could lead to higher closing costs.
A new proposal from HUD has been delayed but efforts are being made to come out with a proposal in 2007.
At roundtables in 2005, HUD disclosed the provisions of a 2004 “final” RESPA rule which was withdrawn from the Office of Management and Budget’s (OMB) consideration. That RESPA rule would have included an enhanced Good Faith Estimate (GFE) four-page form with yield spread premium disclosure and tolerances for third party settlement services; a Mortgage Package Offer (MPO) (formerly the Guaranteed Mortgage Package Offer or GMP), that would have been exempt from RESPA’s Section 8 anti-kickback provisions; and a Settlement Services Package (SSP) productthat would allow non-lenders to offer packages including appraisals, title services, recording fees and other lender required settlement services. HUD’s 2004 rule would not have required a lender to accept an SSP the consumer brought to the transaction.
HUD has said it is committed to drafting a rule that would provide greater certainty of closing costs for consumers. While there is no "formal" consensus, most roundtable participants seemed to agree that HUD should pursue an enhanced or improved GFE and should forgo its regulatory efforts to develop a packaging rule.
b. VA Loan Limits C.A.R. Policy:C.A.R. supports increasing the VA loan limit, especially in high-cost areas to allow veterans better access to affordable home loans.On May 16, 2007, Senator Hillary Clinton (D-NY) and Congressman Patrick Murphy (D-PA) introduced companion bills in both the House and the Senate. The purpose ofthese bills, S. 1409 and H.R. 2385, the 21st Century GI Bill of Rights Act, is to extend and improve access to a number of benefits designed for veterans. This includes exempting “Veterans from paying loan fees and expand opportunities for veterans to purchase, build, repair, or improve a home by increasing access to low interest loans through the Veterans Affairs Home Loan Guaranty Loan Program for homes valued up to $625,000. The current program requires loan fees and is cappedat the conforming loan rate of $417,000.”9. Fannie Mae & Freddie Mac Issuesa. High-Cost Conforming Loan Limit & GSE Reform C.A.R. Policy:C.A.R. supports GSE oversight reform andcreation of a new GSE regulator with powers that include the authority to set high-cost conforming loan limits by an area’s median home price.The new Democratic-controlled Congress raises the prospect that GSE reform legislationmay be adopted in 2007. Proposed legislation introduced by House Financial Services Committee Chairman Barney Frank (D-MA) would overhaul the regulatory oversight of the housing government-sponsored enterprises (GSEs) -- Fannie Mae, Freddie Mac, and theFederal Home Loan Banks system (FHLBanks). The introduced bill, H.R. 1427, is a product of both bipartisan legislation considered in the 109th Congress and compromise agreements between House Democrats and the Department of the Treasury. The new legislation creates a strong, independent safety and soundness regulator with broad powers analogous to current banking regulators.On May 22, 2007, the House passed H.R. 1427 – GSE Reform Bill. Included in the final version isa provision to increase conforming loan limits to match the median home price in high-cost Metropolitan Statistical Areas were the median home price is above the $417,000 conforming loan limit. The high-cost conforming loan limit wouldbe capped at 150% of the national limit, $625,500.
VI.LandUse & Environment IssuesA. Discussion/Reporting Items1. Endangered Species During the 109th Congress there was an attempt to reform the EndangeredSpecies Act of 1973 (ESA) which would have included greater protections and restitution when private land was affected by the ESA. REALTORS® support amendments to the Endangered Species Act that recognize the economic impact in designating and recovering endangered species, provide incentives to encourage species protection, and compensate private property owners when they have been wholly or substantially deprived of the economic value of their property.
Similar legislation will not gain traction in the 110th Congress, especially after the majority shifted to the Democrats. Nonetheless, ESA reform will still be an issue during the 110th Congress. The focus of ESA will now shift away from protecting the rights of property owners and instead focus on using new technology to allow for more accurate scientific facts to push ESA reform. Republicans contend that the ESA is being used as a “powerful weapon to stop development in this country” and will challenge any attempts to make ESA regulations stricter.
No new legislation has yet to be introduced concerning the ESA and property rights in either the House or the Senate.
2. Eminent Domain On May 17, 2007 the House Agriculture Committee passed H.R. 926, the STOPP Act of 2007 (Strengthening the Ownership of Private Property Act) by voice vote. H.R. 926 was introduced by Rep. Herseth (D-SD) and currently has 23 cosponsors. H.R. 926 would restrict federal agencies from providing funding to a state or local government under specified Federal economic development programs for two years if that state or localgovernment uses the power of eminent domain to transfer property from a private entity to another private entity. H.R. 926 also restricts funds when a state or local government fails to provide relocation assistance to a person displaced by the use of eminent domain for economic development purposes.
Exceptions to these rules include when eminent domain is being for: use by a public utility, for a road of common use, for an aqueduct or pipeline, prison orhospital, or for any use during and in relation to a national emergency or a natural disaster declared by the President.
During the 109th Congress, the House passed similar legislation, but the Senate never took action. So far there is no Senate companion bill to H.R. 926.Every state has different needs, and many question whether there is a proper federal response that can address the diversity of situations that will be experiencedacross all 50 states.