Federal Issues Committee
Hyatt Regency Hotel
Regency Room E/F
Long Beach, CA
Thursday, October 16, 2008

3:00 PM – 5:00 PM

Presiding:
J. Michael Roberts, Chair
Barbara Palmer, Vice-Chair
Anthony Agurs, Vice-Chair
Malcolm Bennett, Executive Committee Liaison
Vince Malta, NAR Committee Representative

C.A.R. Staff:
Matt Roberts, Federal Governmental Affairs Manager
Jeff Keller, Public Policy Analyst

I. Opening Comments: J. Michael Roberts

II. Report of Action Items from Reporting Committees

A. Real Estate Finance
B. Taxation
C. Land Use and Environment
D. Equal Opportunity – Cultural Diversity
E. Housing Opportunity
F. Commercial Investment

III . First Impression Issues

A. Action Items:

1.  Healthcare Policy Review
At the June 2008, meeting the Federal Issues Committee passed a motion to have material presented to them which would allow them to evaluate healthcare issues and formulate new policies for current and future legislation.  The goal was to have policy in place by the end of the January 2009 C.A.R. business meetings.

The issue of Small Business Health Plans (SBHP) has been on the legislative for multiple sessions of Congress.  Nonetheless, there have been no major compromises made and neither side has been willing to appease the other. Therefore, while there have been many versions of SBHP legislation, none has found its way through both houses of Congress.  (Please see IBP for further information)

2.  Transportation Policy

The last major reauthorization of federal transportation policy was passed almost four years ago.  A new authorization and changes to the federal transportation policy will be in the 112^th session of Congress.  With the Democrats now controlling Congress and expected to maintain power in the 112^th session, there have already been signs that some considerable changes will be made to transportation policy; however, what those changes are have been fairly ambiguous.  (Please see IBP for further information)

B. Discussion/Reporting Items:

1. Update on the Americans with Disabilities Act

S. 3406, the “ADA Amendments Act of 2008”, amends the Americans with Disabilities Act of 1990 (ADA) to redefine the words/terms “disability”, “major life activities, and “being regarded as having such an impairment”.  S. 3406 was signed by the President on September 25, 2008.

The original 1990 law was intended to make it easier for people with disabilities to work and use services available to the non-disabled by requiring businesses to make accommodations for them, like now-common wheelchair ramps outside fast-food restaurants and wider doors and stalls in public restrooms. Individuals who successfully overcame their disabilities on the job had been judged not “disabled enough” to qualify for the law’s protections under recent court decisions.

S. 3406 was introduced to reverse Supreme Court decisions that have narrowed the scope of the landmark Americans with Disabilities Act.  S. 3406 requires that the definition “disability” be broadly construed by the courts.  It additionally states that an impairment that substantially limits a person in a major life activity need not limit them in other major life activities in order to be considered a “disability” and that an impairment that is episodic or in remission is a disability if it would substantially limit a major life activity when present.

S. 3406 states that the legislation does not alter the standards for determining eligibility for benefits under state worker's compensation laws or under state and federal disability benefit programs; alter the requirement to make reasonable modifications in policies or procedures, unless such modifications would fundamentally alter the nature of the goods, services, facilities, or accommodations involved; or provide the basis for a claim by an individual without a disability that the individual was subject to discrimination because of the individual's lack of disability.

The bill also authorizes the Equal Employment Opportunity Commission, the attorney general and the secretary of Transportation to issue new ADA regulations.

I V. Taxation Issues

A. Discussion/Reporting Items:

1. H.R. 3221: The Housing and Economic Recovery Act of 2008

a. Homebuyer Tax Credit

The tax credit only applies to first time homebuyers; defined as a homeowner who has no present ownership in a principle residence or has not had ownership of a principle residence for at least 3-years.

The tax credit is 10% of the purchase price, capped at $7,500.  The tax credit is reduced when the buyers adjusted gross income (AGI) is over $75,000 ($150,000 married filing jointly).  The amount is reduced by the amount over the allowed AGI divided by $20,000.  The tax credit does need to be repaid, therefore working more as an interest free loan than a true tax credit.  The credit is repaid out of your taxes over 15-years, or a rate of 6.66% of the credit per year. 

If the home is sold before the credit is paid back, payments are accelerated in the following taxable years by the amount still owed on repayment over the original amount of the credit.  However, if your gain on the house does not exceed the amount still owed at the time of sale, you will not owe any more repayment on the credit. 

The home must be purchased between April 8, 2008 and June 30, 2009.The purchase must be of an owner occupied primary residence. You cannot get the credit is the property is purchased from a relative, the purchase is financed by a tax exempt qualified mortgage issue/bond, the taxpayer is a nonresident alien, or if the taxpayer disposes of the residence before the close of the taxable year.

b. FIRPTA

H.R. 3221 included a reform of the Foreign Investment in Real Property Tax Act (FIRPTA), that C.A.R. has been advocating for, that would allow FIRPTA documents to be held by escrow instead of having to go to the buyer.  Sellers had been refusing to provide their Social Security number on the FIRPTA documents, a requirement, due to fear of identity theft.

c. Mortgage Revenue Bonds

Included in H.R. 3221 was an increase in the amount of allowed tax-exempt housing bonds, to $10 billion, and allows the use of the bonds to refinance qualified subprime mortgages (adjustable rate single-family residence made after December 31, 2001 and before January 1, 2008). 

d. Community Development Block Grants

H.R. 3221 provided for $4 billion in neighborhood revitalization funds for communities to purchase foreclosed homes in the form of development block grants.

e. Standard Deduction for Property Taxes

Included in H.R. 3221 was the creation of a new standard deduction for property taxes for nonitemizers, capped at $500 ($1000 for joint filer).

f. Second Home Conversion Tax Offset

One of the offsets included in H.R. 3221 was the closing of a tax loophole concerning the conversion of a second home to a primary residence and the capital gains exclusion.  This offset ONLY applies when a second home is converted to a primary residence and does not affect the capital gains exclusion when a home has only been a primary residence.

The loophole allowed a second home that was converted to a primary residence and used as such for at least two out of the previous five years to use the $250,000/$500,000 capital gains exclusion.  H.R. 3221 closes that loophole and will now only allow the capital gains exclusion to apply to gain received once the house became a primary residence.

Any gain earned prior to January 1, 2009 would not be affected by this provision and there are some exclusions of this policy for extended military service (with limitations) as well as change of employment, health conditions or other unforeseen circumstances (not to exceed an aggregate period of two years).
 

The new formula to calculate the gain allowed to be included in the capital gains exclusion would be: Profit from the sale multiplied by the number of days the home was a primary residence over the number of days the home was owned.

2. Tax Extenders
A temporary rule permitting the cost of leasehold improvements to be recovered over 15-years has been in place since 2004 but expired as of December 31, 2007. Prior to the enactment of this provision, these costs had to be recovered over the 39-year statutory life of the underlying property, even if the lease had a substantially shorter term.

The 15-year leasehold improvement provision is included in the larger tax extenders legislation, H.R. 6049, the “Energy and Tax Extenders Act of 2008” which also includes a deduction for state and local taxes, and Brownfield deductions. There is little to no debate over the merits of these tax extensions; however, there is substantial disagreement between the House and Senate and among the two parties as to whether the extender legislation should be "paid for". 

Currently these tax extenders are part of a Senate package that includes energy tax breaks and the AMT patch.  The House Democrats, especially the Blue Dog Democrats, want to make sure that the extenders are offset, especially the AMT provisions.  Currently, the tax extenders are not fully offset, the energy tax breaks are, and the AMT patch is not offset at all.  It appears as if there will be another showdown, with the Senate Republicans refusing to fully offset the extenders and the House Democrats trying to hold to the fiscally responsible PAYGO rules.  The real estate tax extension may be caught in this legislative fight and be delayed, especially with this being an election year and the possibility of their being a shift towards even greater Democratic numbers. House Democrats may be willing to punt this issue to the start of the 111^th Congress in hopes of have a larger majority and the ability to pass these extenders fully offset.

3. AMT
One of the largest tax debates in the 110^th Congress is the one-year patch to the AMT.  The main controversy surrounding the issue is offsetting the $64 billion one-year patch.  In the first session, Democrats tried a variety of options to find an acceptable offset for the AMT patch in order to keep with PAYGO rules.  However, Republicans in the Senate and the President refused to accept any offsets. 

In the end, the Democrats decided that it was more important to help keep an extra 20 million Americans out of the AMT and in the waning days before Christmas passed a one-year patch without offsets. 

Once again there is an attempt by the Senate Republicans to have the AMT patch not offset.  The Senate Democrats have acknowledged that they do not have to votes to offset the AMT patch.  The Senate Republicans have attached the AMT patch to the tax extenders an energy tax breaks and have vowed that they all must be passed together, without full offsets. 

However, with this being an election year and the possibility of their being a shift towards even greater Democratic numbers, the House Democrats may be willing to punt this issue to the start of the 111^th Congress in hopes of have a larger majority and the ability to pass an offset AMT.

4. Qualified Veteran Mortgage Bonds

C.A.R. Policy:  C.A.R. supports eliminating the pre-1977 service requirement for QVMB eligibility.

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. 

Previously, to qualify for a QVMB a veteran must have served on active duty prior to January 1, 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. 6081, the “Heroes Earnings Assistance and Relief Tax Act of 2008”, was passed by both the House and Senate and signed into law on June 17, 2008.

H.R. 6081 included language that would make permanent the exception that allows QVMBs to be eligible for any housing, not just a first-time homebuyer, and included the change that instead of having to serve prior to January 1, 1977, you now would just have to apply for the QVMB within 25-years of your last date of active duty service. 

V. Real Estate Finance Issues

A. Action Items:

1. Seller Funded Downpayment Assistance Programs

H.R. 3221, the Housing and Economic Recovery Act, which Congress passed back in July, will prevent FHA from insuring mortgages that utilize seller funded downpayment assistance programs.  Congress is expected to revisit the issue prior to adjournment or early next session.  (Please see IBP for further information)

B. Discussion/Reporting Items:

1. Emergency Economic Stabilization Act

On September 18, 2008, the U.S. Treasury, Federal Reserve Board, and Congressional Leaders from both parties announced the government was officially stepping in to bail out the financial industry as it sat upon the edge of collapsing.  Being termed as the “nuclear” option, these actions are unprecedented and rival that of those taken during the Great Depression.  (Please see IBP for further information)

2. Future of Fannie Mae and Freddie Mac

Now that the Treasury has placed both Fannie Mae and Freddie Mac under conservatorship, Congress needs to begin the discussion of what the long term mission and role for the government sponsored enterprises (GSE’s) should be.  When Congress meets again for their 111^th Session, Congressman Barney Frank and Senator Christopher Dodd will discuss and are likely to introduce legislation to address the future structure of the GSE’s.  (Please see IBP for further information)

3. Housing and Economic Recovery Act of 2008

In response to the recent housing crisis, credit crunch and weakening economy, Congress passed and the President signed the Housing and Economic Recovery Act of 2008 in July.  The purpose of this legislation was to stabilize the housing market and prevent a full economic recession.  (Please see IBP for further information)

4. Energy Efficient Mortgages

The FHA and VA currently offer energy efficient mortgages that allow homeowners to finance modifications to their homes at the time of purchase.  While these loans have gone all but unnoticed, the issue of energy efficiency has gained momentum and the time may be appropriate for Congress to alter these programs in a manner that would make them more appealing to homebuyers and have a meaningful impact on the environment. (Please see IBP for further information)

5. FHA Flipping Rule
On June 9, 2008, HUD announced it is expanding the categories of properties exempt from its 90-day anti-flipping rule. Under the current rule, FHA requires that 1) only owners of record may sell properties that will be financed with FHA insured mortgages; 2) any resale of a property may not occur 90 or fewer days from the date of the last sale to be eligible for FHA financing; and 3) that for resales occurring between 91-180 days after the original sale where the new sales price exceeds the previous sales price by 100% or more, FHA will require additional documentation to validate the property's value. HUD exempted from the property flipping rules properties sold by HUD through its Real Estate Owned activities, new homes being sold by builders and properties being sold by relocation companies and the property owner's employer as part of a job relocation. Certain properties were exempted from this rule.

The new waiver allows for properties acquired by foreclosure by mortgagees that are not state-or federally-chartered to become eligible for FHA-insured financing during the 90-day period.

REALTORS® support the waiver. In a letter to HUD, NAR President Richard Gaylord urged HUD to exempt from the time restrictions all REO properties sold by any entity that has as its principal business activity the lending or investment of funds in real estate mortgages. The waiver will expire in one year.

6. Regulation Z

On July 14, 2008, the Federal Reserve published their final rule amending Regulation Z (Truth in Lending).  The intent of the new rule is to curb abusive lending practices that helped lead to the current foreclosure and financial crisis.  The new rule will create a new category of loans known as “higher-priced mortgage loans.”  These loans will be defined as any loan that is secured by a consumer’s principal residence, and has an annual percentage rate that is 1.5 percentage points or more above the average prime offer rate, based on a survey currently published by Freddie Mac.  For second liens the spread will be 3.5 percent. 

Loans that fall into this category will have new protections that include: 

 - Prohibiting a lender from making a loan without regard to borrowers' ability to repay the loan from income and assets other than the home's value.  A lender complies, in part, by assessing repayment ability based on the highest scheduled payment in the first seven years of the loan. To show that a lender violated this prohibition, a borrower does not need to demonstrate that it is part of a "pattern or practice."

•  - Requiring creditors to verify the income and assets they rely upon to determine repayment ability.
•  - Banning any prepayment penalty if the payment can change in the initial four years.  For other higher-priced loans, a prepayment penalty period cannot last for more than two years. This rule is substantially more restrictive than originally proposed.
•  - Requiring creditors to establish escrow accounts for property taxes and homeowner's insurance for all first-lien mortgage loans.
   

There are also new rules that will impact ALL loans securitized by a consumer’s principal residence. They are:

•  - Creditors and mortgage brokers are prohibited from coercing a real estate appraiser to misstate a home's value.
•  - Companies that service mortgage loans are prohibited from engaging in certain practices, such as pyramiding late fees.  In addition, servicers are required to credit consumers' loan payments as of the date of receipt and provide a payoff statement within a reasonable time of request.
•  - Creditors must provide a good faith estimate of the loan costs, including a schedule of payments, within three days after a consumer applies for any mortgage loan secured by a consumer's principal dwelling, such as a home improvement loan or a loan to refinance an existing loan.  Currently, early cost estimates are only required for home-purchase loans.  Consumers cannot be charged any fee until after they receive the early disclosures, except a reasonable fee for obtaining the consumer's credit history.
  

You may find more information on this rule at the Federal Reserve’s Website.

7. Banks in Real Estate
On December 26, 2007, President Bush signed into law the FY2008 omnibus appropriations bill which includes a two-year provision prohibiting banks from entering the real estate brokerage, property leasing and management business. NAR was well position to secure a permanent ban. However, due to a last minute objection by Senator Robert Byrd (D-WV), Chairman of the Senate Appropriations Committee, the permanent language was struck and replaced with a two-year ban.  REALTORS® will push for a permanent moratorium to be included in next year’s budget.

8. HUD RESPA Proposal

On May 7, 2008 the Department of Housing and Urban Development (HUD) announced a 30-day extension, to June 12, 2008, for the public to comment on the proposed Real Estate Settlement Procedures Act (RESPA) rule. The announcement came just six days before the initial comment period was to end on May 13, 2008 and two days after HUD received a Congressional written request for a 60-day extension signed by 149 members of Congress. The Congressional letter, organized by Rep. Ruben Hinojosa (D-TX) and Rep. Judy Biggert (R-IL), referred to the extensive nature of the RESPA reform proposal and the fact that some aspects had not previously been the subject of public comment. In addition, the letter stated that further analysis was needed on the proposed rule's interaction with state and federal laws and regulations including the Federal Reserve Board's proposal to amend its Truth in Lending Act (TILA) regulations. REALTORS® worked closely with the offices of Representatives Hinojosa and Biggert to help collect signatures for the letter. The fact that HUD provided a 30-day extension rather than the 60-days requested by Congress will be revisited in the future and another extension request may be made if warranted.

REALTORS® have been working with its members and industry partners to analyze and determine the proposal's impact on association members and the settlement service industry. REALTOR® Gary Thomas, along with other settlement service industry representatives participated in a Small Business Roundtable on April 24, 2008 and expressed REALTORS®’ concerns about the proposed rule, including the comprehensive nature of the proposal which goes well beyond the anticipated reform narrowly focused on improved disclosures, the timing of provisions requiring significant changes to the real estate settlement process, and comments directed at specific provisions including volume discounts, average cost pricing, price tolerances, a new definition of "required use" and a new "closing script" which must be read aloud at closings.

REALTORS® have recommended that HUD develop a one-page summary GFE to help buyers comparison shop, accompanied by a full GFE that includes all closing costs to reduce confusion. REALTORS® also supports improved disclosures of mortgage terms and settlement services.

On September 16, 2008, the House Financial Services Committee held a hearing about the implementation of HUD’s proposed RESPA rule where T. Anthony Lindsey, a Realtor® broker-owner from Charlotte, N.C., spoke on behalf of NAR.

VI. Land Use & Environment Issues

A. Discussion/Reporting Items

1. Climate Change
Currently, NAR does not have any policy on climate change.  However, NAR does expect to look at this issue during their upcoming meetings and there is a possibility that a policy might be presented or offered.

Climate change was one of the top environmental issues in the 110^th Congress and has been gaining prominence over the years.  Current Congressional leadership is looking to make it a priority to pass legislation in the 111^th Congress that would bring a reduction in greenhouse gases.

VII. New Business

VIII. Adjournment