A. HUD Update - FHA Modernization Urged:áIn April 2007 HUD Assistant Secretary for Housing, Brain Montgomery testified to the House Financial Services Committee that ôthe most practical and immediate way to address the needs of a large number of troubled subprime homebuyersö was through the modernization of HUDÆs FHA.á FHA modernization, H.R. 1852, would include increasing loan limits (which would help in high-cost areas such as California), create a new risk-based financing, and would add flexibility to their downpayment requirement (currently at 3%).á
In August, President Bush also announced that he wanted to see FHA modernization to help struggling homeowners refinance troubled loans.á In the meantime though, they have started FHASecure Plan,which will help some families with strong credit histories and who have been making timely mortgage payments before their loans reset, but are now in default, to refinance into an FHA loan.
On September 18th,the House passed H.R. 1852 by a vote of 348 û 72.á On September 19th, the Senate Banking, Housing, and Urban Affairs Committee marked up their version of FHA reform.á The Senate version, named the FHA Modernization Act of 2007, differs from the House version in a few ways; a requirement for at least 1.5% down; and increasing the conforming loan limit to 100% of conforming, $417,000.á No Senate vote date has been set for FHA reform.
B. Mortgage Assistance:á With the subprime market becoming a larger political issue, the Congress has started to look at ways to assist homeowners whom are facing foreclosure.á There is some debate as to whether these solutions should be left to the private sector or whether government programs are needed.á Fannie Mae and Freddie Mac have announced a $20 billion program to help refinance struggling families into fixed rate loans.á Some states have alreadyintroduced legislation that would sell bonds in order to raise funds that will be used to help those facing foreclosure.á In the Senate, Senator Schumer (D-NY), Senator Brown (D-OH), and Senator Casey (D-PA) have proposed federal funds for community organizations that assist in helping families facing foreclosure.á
If a homeowner is facing risk of foreclosure or starting to fall behind on payments, there are several steps a homeowner should take.á The first step is to contact the holder of your mortgage.á They are often willing to help you through either forbearance or even modify your original loan terms to help make the payments more manageable.á Mortgage holders do not want tohave to foreclose as it will cost them as well, so many are willing to attempt to find an alternative to help the homeowner.
Additionally, if a homeowner needs counseling to help them with their credit or payment problems, they can contact HUDhousing agencies.á HUD housing agencies are located in almost every county in California.á These agencies can be found on the HUD website or by contacting Jeff Keller at C.A.R. (firstname.lastname@example.org or 213-739-8398).
Finally, the IRS has added a special section to their website concerning tax issues and consequences with foreclosures and debt cancellation.á This information can be found on the IRS webpage (www.irs.gov) or directly at : http://www.irs.gov/newsroom/article/0,,id=174034,00.htmlC.áNot at Home With English: On September 13, 2007 the Los Angeles Times reported on a story that said new census numbers show that 43% of people in California speak a different language in their private lives then they do in their public lives.á That number peaked at 53%, specifically in Los Angeles.á
The people in these census numbers are bilingual and normally fluent or have a firm grasp on the English language. They speak English at their professions and in some outside environments, but at home traditionally speak only their native tongue.á These people are speaking a language other then English at their homes by choice, not by necessity.á
Many just feel more comfortable speaking another language and many want their household and children to remember their heritage and to make sure they maintain fluency in their other language.
The most common other languages spoken in California are Spanish, Korean, Thai, Russian, Mandarin, Hmong, and Armenian.D.GSE Oversight & High-Cost Conforming Loan Limits:Recently Congress has reinvigorated its attempt to write Government Sponsored Enterprise (GSE) regulatory reform legislation amid continuing scrutinyof Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.á
áH.R. 1427 includes a newly created independent GSE regulator to set high-cost áááááááááááááá conforming loan limits by an areaÆs median home price, up to 150% of the national conforming loan limit.á This would increase the conforming loan limit to $625,500 in CaliforniaÆs highest-cost areas.á In addition to the high-cost provision, H.R. 1427 would reform the GSE in thefollowing ways:
It would create a new independent regulator with broad authority to direct the activities of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks,
It does not set statutory limits on the retained portfolio of the GSE, nor limit what may be held,
It would create a streamlined approval process to bring new programs to the market quickly,
It would require the new regulator to define mortgage origination and the secondary market, prohibiting the GSE from participating in activity not considered a secondary market activity (The bill does exempt existing automated underwriting, consumer education, and counseling programs from this definition), and
It would create an affordable housing fund using 5% of the GSEs after-tax profits.
On May 22, 2007 the House passed H.R. 1427 by a vote of 313-104.á The Senate has áááá yet to introduceáany legislation concerning GSEs and high-cost conforming loan limits, but Chairman of the Senate Finance Committee, Sen.Dodd, has said that GSE legislation could be considered during this session as an optionáto help put more capitaláinto the housing market.á C.A.R. and NAR continue to lobby to have a billáintroduced in the Senate that includes high-cost conforming loan limits in any Senate bill.á
E. Minorities Worry About Housing Slump:áA recent Reuters/Zogby poll shows that African-Americans and Hispanics are far more worried about the decline in the U.S. housing prices and availability of home loans.á 60% of African-Americans and 33% of Hispanics expressed worry, while only 11% of whites did.á
These surveys are said to reflect the growing economic uncertainty and a feeling of declining hope among some minorities, even as consumer confidence surveys show Americans overall are feeling generally upbeat.
The national telephone survey was of 1,020 likely voters and was conducted on August 9-11.á The marginof error was plus or minus 3.1%.
F.áU.S.Probes Mortgage Prices Charged to Minority Borrowers:áThe Justice Department is investigating several lenders over suspicions they charged minority borrowers higher mortgage rates than comparable to white borrowers.á The 2005 Home Mortgage Disclosure Act found that 55% of African-American borrowers and 46% of Hispanic borrowers received costly mortgages, compared to just 17% with Whites.á However, this data does not take into account whether borrowers who received more expensive loans also had worse credit histories.á
While the lenders in question have not been identified, the Justice Department reports that all lenders under question are assisting with the investigation and so far only three lenders have been referred to federal prosecutors for further examination. G.Mortgage Cancellation:In todayÆs 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 forgive some or the entire shortfall (this is known as a "short sale").á 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/borroweráisrequired to recognize income and pay tax on the amount of the canceled debt. Exceptions are provided to this rule ináthe 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 individualáwho sells a personal residence for an amount that is less than the outstanding debt on the property.
áExample: 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 outstandingámortgage. If the lender forgives this $15,000 debt, then the homeowner must recognize the $15,000 as áááááá ordinary income and pay tax on it. ááááááááááááááá áLegislation is needed to assure that mortgagedebt that is canceled or forgiven is not treated as income andátaxed on primary residences.á The House introduced H.R. 1876, the Mortgage Cancellation Relief Act ofá 2007, which would allow for residential mortgage debt relief to be excludedfrom gross income.á The Senate introduced a companion bill, S. 1394. S. 1394 is currently in the Senate Committee on Finance and has eight (8) cosponsors. H.R. 1876 is currently in the House Ways & Means Committee and has 30ácosponsors, including Reps. Eshoo and Filner.áOn September 25, 2007 Chairman of the House Ways & Means Committee, Rep. Rangel (D-NY) introducedá his own mortgage cancellation relief bill, H.R. 3648, the Mortgage Forgiveness Debt Relief Act of 2007.á OnáSeptember 26, 2007, H.R. 3648 passed out of the House Ways & Means Committee by a unanimous voiceávote.H.R. 3648 would remove taxes from mortgage cancellation relief provided on a mortgageáon a primary residence.á The tax relief would only apply to the original purchase price, á plus personal improvements of aá áprimary residence and would not cover any amount over the original purchase price if a loan has beenárefinanced with a ôcashoutö option.á The relief would also only apply to first mortgages, not secondámortgages or home equity lines of credit.á The relief would apply to any forgiveness given on or after á January 1, 2007.H.R. 3648 was marked up to cost $2 billion over 10-years.á Under PAYGO rules, to offsetáthis lost inárevenue, H.R. 3648 made changes to corporate estimated tax rates and to rules governing secondá á homes that are converted into primary residences.á Currently, if a second home is converted to aá áprimary residence and lives in for at least two out of theápast five years, this home is allowed to use theá$250,000/$500,000 capital gains exemption.á H.R. 3648 would allow gain received once the house becameáa primary residence to be excluded from capital gains taxes (up to the same limits), but would tax gains attributed to the time when the house was not a primary residence, up to the previous 15 years.á However, this rule will not count against any gain prior to January 1, 2008.
H. Visitability Housing.Visitability Housing (also known as Accessible Housing) is designed and built to allow guests with mobility impairments to visit someone in their home without architectural barriers impeding their ability to move in and out of the home or use facilities that a guest would need. Such housing also makes it easier for residents to adapt their house as they age and develop mobility impairments. A significant number of local governments have required or encouraged new housing to be built with accessible features. There are some national voices calling for greater inclusion of accessible features in new homes as well.
Housing which is accessible may be more attractive to buyers who have friends and relatives with mobility impairments. The costs associated with adding basic accessibility features, such as no-threshold steps, wider doors, and larger guest bathrooms, add little to the cost ofhousing at the time of construction. Such housing could be marketed as accessible to buyers.
At the May NAR meetings there was a motion ôThat NAR support, in concept, housing visitability features which allow family members and guests with mobility impairments to visit a home through an accessible entry, one accessible room, and an accessible bathroomö.á
However, the concept and application of visitability housing was still vague.á Would this be for all newhousing or would it include previously built housing?á What would the impact be on affordable housing?á Because of these questions, the NAR Executive Committee recommended that committeesÆ further study the issue and that NAR form a formal working group on the issue.á The working group is being formed and may report back as early as the November NAR meetings.á C.A.R will keep you informed of the issue.
IV.Avoiding Foreclosureû Greg Galli, Chair, Troubled Mortgage/Foreclosure Task Force
V. Roundtable Discussion: - Eva Garciaáááááááááááááááááááááááááááááááááááááááááááááááááááááááááááááááááááááááááááááááááááááááááá
A. Comments and Suggestions on C.A.RÆs EOCD Website
VI.Other Business ûEva Garcia
A.NAR Update û Allen Chiang, NAR Committee RepresentativeVII. Adjournment -Eva Garciaááááááááááááááááááááááááááááááááááááááááááááá