Marriott Hotel Marquis Ballroom South Anaheim, California Thursday, October 11, 2007 9:00 am – 11:30 amPresiding: Mike Donohoe, Chair Patricia Bouie Hinds, Vice Chair Greg Galli, Vice Chair Susan Tilling, Executive Committee Liaison Judy Zeigler, N.A.R Committee Representative Diane Carlton, GAD LiaisonC.A.R.Staff: Matt Roberts, Federal Government Affairs Manager Dave Milton, Legislative Advocate
I. Opening CommentsII. State IssuesA. C.A.R. Sponsored LegislationAB 1356 (Houston) Agents of Equity Purchasers- Existing law effectively (and inappropriately) precludes legitimate agents from representing investor purchasers of properties that are in foreclosure. The prohibition is the inadvertent result of requiringbuyers’ agents to purchase a bond for the sale of twice the value of the property. These bonds are currently not available. AB 1356 will allow agents an alternative for demonstrating financial responsibility through the proof of E&O insurance,which is available. This measure will make the financial responsibility requirement of the Home Equity Sales Act (Act) workable, and avoid artificial restrictions on the ability of homeowners to salvage their equity from foreclosure. The Assembly Judiciary Chairman, Dave Jones, and Committee Staff are working with C.A.R. and the State Bar, as well as representatives from Legal Aid and the Western Center on Law & Poverty to resolve this dilemma in the equity purchaser process. An agreement was reachedamong interested parties shortly before the Legislature recessed that an acceptable alternative to the bond requirement would be the existence of professional liability insurance coverage in an amount equal to at least twice the value of the property coupled with an unrestricted real estate license in good standing. The bill will be heard in January with such language amended into it, as well as any other provisions that are collectively agreed upon by the stakeholders in this issue and the Assembly Judiciary Committee. Status:Assembly Judiciary CommitteeB. Other Legislation1. General Bills of InterestAB 588 (DeLeon) Credit History and Public Utilities-This bill is intended to assist consumers in building a positive credit history by permitting them to authorize the release to financial institutions or consumer credit reporting agencies of the consumer/subscriber’s utility service payment history. Such consent mustbe in writing. The proposed statute requires the Public Utilities Commission to promulgate rules to govern the public utilities’ provision of the consumer’s payment history. No other information regarding the consumer may be provided by the utility. C.A.R. Position:Favor Status: Senate Judiciary CommitteeAB 628 (Price) Residential Mortgage Loans and Gift Prohibitions-This isa proposal to prohibit real estate brokers and residential mortgage lenders or servicers from making a gift to a borrower or potential borrower. “Gift” is defined to include, but not be limited to, money, a rebate, a trip, a gift card, or a gift certificate. C.A.R. opposes this bill because it would prevent real estate brokers from negotiating compensation terms with clients and significantly impact the broker’s ability to conduct his/her business. AB 628 has become a two-year bill at the request of the author. It must get out of its house of origin (Assembly) by the end of January to remain a viable bill. C.A.R. Position:Oppose Status: Assembly Banking & Finance CommitteeAB 941 (Torrico) Real Property Loans and E- Documents-This bill, as introduced, proposed to require a real estate broker or lender to provide a borrower with the option to receive all documents connected with a loan in an electronic format. The author abandoned this effort in September and converted the bill to one dealing with Emergency Medical Technicians. C.A.R. is no longer following this bill. C.A.R Position: Dropped Status: Governor’s DeskAB 1677 (Calderon, C.) Internet Banking Transactions-Opposed by virtually all of the financial institutions industry representatives, this bill proposes to require that businesses providing banking and other financial services over the internet implement policies and procedures for authenticating the legitimacy of such internet transactions, with fines and legal liability created for failure to do so. It must get out of the Assembly by the end of January to remain an active bill. C.A.R. Position:Watch Status: Assembly Floor Inactive File2. Nonconforming Loan/Sub-Prime Loan Bills SB 385 (Machado) Real Estate Mortgages - This bill states that the Legislature declares that the following documentscontain important risk management and consumer protection principles that certain California mortgage loan borrowers should be provided: 1) The Interagency Guidance on Nontraditional Mortgage Product Risks, issued in September of 2006 by the federal financial institution regulatory agencies ( OCC, FED, FDIC, OTS, and NCUA). 2) The Statement on Subprime Mortgage Lending, issued in June 2007 by the above referenced agencies. 3) The Guidance on Nontraditional Mortgage Product Risks, issued in November 2006 by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators 4) The Statement on Subprime Mortgage Lending, issued in July 2007 by the same entities as stated in #3 above.
The bill further requires that the state financial transaction regulators, including the Department of Real Estate, shall apply the guidance principles on nontraditional mortgage product risks cited in (1) – (4) above to practices of real estate brokers who are making mortgage loans and conducting business within the meaning of Business & Professions Code Section 10131.1. The same requirement is being imposed upon the Department of Financial Institutions and the Department of Corporations as to the lenders they regulate.| C.A.R. Position:Watch Status: Governor’s DeskAB 1538 (Lieu)- California Housing Trust Fund; Home Loan Refinance Assistance-The author, Chairman of the Assembly Banking & Finance Committee, is proposing to create a home loan assistance program, to be known as the “Foreclosure Prevention Act”, funded by private donations into the California Housing Trust Fund and administered by the California Housing Finance Agency (CalHFA). It would allow first-time homeowners who are facing foreclosure due to loan terms associated with variable interest rates, prepayment penalties, balloon payments, orexcessive fees, to refinance their loans into fixed rate loan products. The borrower and holder of the loan would have to agree to enunciated criteria established by CalHFA. C.A.R. is currently watching the bill, but has not taken a position, because itsauthor has indicated the bill will require a significant amount of additional research and consultation with the lending industry before being finalized. It became a two-year bill during the summer and must pass its house of origin (the Assembly) by the end of January to remain a viable bill. C.A.R. Position: Not Rated File Status: Assembly Appropriations CommitteeC. State Administrative ActivityBusiness, Transportation & Housing (BT&H) Agency Consumer Home Mortgage Information WebsiteBT&H has a website for consumers looking to purchase ahome, and those already in homes, to provide helpful information about mortgages. The new “Consumer Home Mortgage Information” Website can be accessed at www.yourhome.ca.gov or www.sucasa.ca.gov. These websites are intended to provide as much information as possible regarding nontraditional mortgage products in particular and mortgages generally in the current market.III. Federal IssuesA. Discussion/Reporting Items1. Subprime and Predatory LendingC.A.R. Policy: C.A.R. has addressed subprime and predatory lending issues multiple times, as well as 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 or the Senate Banking, the Housing and Urban Affairs Committee and 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 were discussed; including federal preemption of state subprime and predatory lending laws, bail out of home owners, refinance assistance for homeowners, a one page outline of loan terms, and others.It is still too early to know what final legislation will look like. While both the Senate and the House are likely to pass bills, it is unclearwhether they will be able to agree on a final bill to send to the President’s desk.Congressman Barney Frank, Chair of the House Financial Services Committee, and Senator Christopher Dodd, Chair of the Senate Banking, Housing, and UrbanAffairs Committee, are in the process of drafting individual bills.2. Federal Financial Regulatory Agencies Issue Final Statement on Subprime Mortgage LendingDescribing “prudent safety and soundness and consumer protectionstandards that institutions should follow to ensure borrowers obtain loans they can afford to repay,” the regulatory agencies issued their final Statement on Subprime Mortgage Lending. The agencies hope the Statement will addressissues in the subprime market dealing with adjustable-rate mortgage (ARM) products. These issues include:
Underwriting the borrower at a fully indexed, fully amortized interest rate,
Avoiding stated income and reduced documentation loans (commonly known as “liar loans”), unless mitigating factors reduce the need to verify the borrower’s repayment capacity,
“Clear and balanced” information for the consumer on the loan product, and
Limiting prepayment penalties so borrowers may refinance into new products BEFORE the interest rate resets.
Because this is a “Statement” as opposed to a rule many members of Congress, along with consumer groups, have been critical of the agencies’ response to problems in the subprime market. Regulators have preferred to let the market play out and address predatory lending and unsafe and unsound practices in a reactionary manner. But continuous problems in the subprime market and steady rising foreclosure rates may force their hand to do more or risk intervention from Congress.This statement was a joint statement by the Office of the Comptroller of the Currency, Federal Reserve System, Federal Deposit Insurance Corporation, Office of Thrift Supervision, and National Credit Union Administration.3. FICO Piggybacks
“Rent your credit and earn thousands!” This is the headline on http://www.tradelinebrokers.com website. This is just one of the many on-line companies that offer to “boost” the credit score of consumers with poor or no credit histories. Because Fair Isaac’s FICO model allows the goodcredit history of a cardholder to flow into the credit files of all authorized names on the card, many consumers benefit from a boost in their credit score without receiving access to the credit card itself. Consumers can raise their credit score 100 to even 200 points by having these companies place their names on the credit cards of cardholders with excellent credit histories. Then, these card holders receive monthly payments dependant upon the number of people placed on their card, the number of cards used, and their credit score.While considered unethical by many people, this practice does not appear to be illegal. Historically, parents would place their children on their credit cards as a way to build their credit history and teach the responsibility that comes with credit. The evolution of the internet has allowed FICO “piggybacking” to become widespread. In order to combat this trend, Fair Isaac’s is expected to launch “FICO 08” which will no longer consider authorized-user accounts in computing credit scores.4. National Disaster InsuranceC.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 updateinsurance regulations and the tax code so that insurance companies may better prepare for disasters.In recent years, the intensity of large natural disasters has made the acquisition of adequate homeowners’ insurancevery difficult in some areas. More and 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 increases in insurance premiums are the Gulf and East Coast states with premiums increasing by 12 times as much.In California, it is only a matter of time until a large earthquake hits a highly populated area causing incalculable financial damage along with personal casualties that follow such a tragedy. According to the California Insurance Commissioner, only 14 percent of California homeowners have earthquakeinsurance. Some can’t afford it, while others believe the federal government will pay to rebuild their homes, such as it is doing after Hurricane Katrina.On August 3, 2007, Representatives Ron Klein and Rim Mahoney of Florida introduced the Homeowners Defense Act of 2007, H.R. 3355. The legislation is the latest attempt to address the issue of natural disaster insurance. The legislation will:
Create the ability for states to pool their catastrophe risk with one another,
Allow states to transfer risk to the private markets through catastrophe bonds and reinsurance contracts, and
Create the National Homeowners Insurance Stabilization Program to provide low interest federal loans to states impacted by severe natural disasters.
On September 6, Vince Malta testified in front of the Subcommittees for the House Financial Services Committee in favor of H.R. 3355 on behalf of the REALTORS®.5. Banks in Real EstateC.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 conglomeratesto 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 1956 and 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 toengage in real estate brokerage and management, national bank conglomerates would have an unfair competitive advantage resulting in inherent conflicts of interest.The House introduced H.R. 111 and the Senate introduced S. 413, both of which would place a permanent ban on banks entering into real estate activities. Presently, H.R. 111 has 264 cosponsors and S. 413 has 21 cosponsors.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 passed a one-year moratorium on allowing banks in real estate. The Senate Appropriations Committee passed a permanent ban on banks in real estate, thanks in large part to the vocal support of California Senator Dianne Feinstein.6. Industrial Loan CompaniesC.A.R. Policy: C.A.R. supports the separation ofBanking 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 FederalDeposit 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 Companyand 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. On May 10, 2007, Senator Sherrod Brown (D-OH) introduced companion legislation in the Senate, S. 1356. S. 1356 has been referredto the Senate Banking, Housing, and Urban Affairs Committee. 7. Flood InsuranceC.A.R. Policy: C.A.R. supports reform of the NFIPOn March 26, 2007, CongressmanBarney 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 extended financial assistance to the NFIP; however, it is only a temporary solution and C.A.R. is cautiously optimistic that a bill will be passed prior tothe end of the 110th Congress.H.R. 1682 would:
Increase flood insurance coverage for residential property,
Provide coverage for necessaryincreases 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,
Amend 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.
On June 12, 2007, the House Financial Services Subcommittee on Housing and Community Opportunity held hearings on H.R. 1682; however, no action has been taken to move the bill.IV. FHA IssuesA. FHA ReformC.A.R. Policy:C.A.R. supports increasing FHA’s loan limit to 100% of the conforming loan limit or above, 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. Originally, the legislation would have increased the FHA 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). But, on September 18, California Congressmen Gary Miller and Dennis Cardoza introduced an amendment to increase the FHA loan limit to 125% of an area’s median home price, capped at $729,750.
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 percent down.
Allowing the FHA to set its insurance premiums by risk.
On September 18, the House passed H.R. 1852 by a vote of 348 – 72. On September 19, the Senate Banking, Housing, and Urban Affairs Committee marked up their version of FHA reform. The Senate version 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.B. FHA Manufactured HousingOn June 25, 2007, the House of Representatives passed H.R. 2139, the FHA Manufactured Housing Loan Modernization Act, by a voice vote. The purpose of this bill is to, among other things:
Allow lenders to do more FHA insured manufactured loans,
Raise the loan limits from $48,000 to $69,678,
Index this limit for inflation on an annual basis, and
Increase the up front FHA insurance premium to ensure the program is sufficiently financed.
The Senate version of this bill is included in the Senate’s FHA Reform bill that passed out of Committee in September.V. VA & HUD IssuesA. National Affordable Housing Trust FundC.A.R. Policy: C.A.R. has historically supportedaffordable housing efforts.California representatives Maxine Waters and Gary Miller have co-introduced, along with Chairman Barney Frank (D-MA), H.R. 2895, the National Affordable Housing Trust Fund Act. The bill, which wasintroduced in June, 2007, and reported out of Committee in July, would establish the National Affordable Housing Trust Fund (NAHTF) to issue grants for the purpose of construction, rehabilitation, and preservation of affordable housing. The NAHTF would be funded by a portion of the profits generated by the GSE Reform bill (HR 1427), the FHA Reform bill (HR 1852) and any other sources subsequently identified. The money will be given out to states and local governmentsto be utilized and further dispersed. All NAHTF money must be used for low-income families (below 80% of state or local-median income) and 75% will go to extremely low-income families (below 30% of median income or national poverty level).Eligible recipients will be any “organization, agency, or other entity, including for-profits, nonprofits, and faith-based organizations, that have demonstrated the experience and the capacity to carry out the proposed Trust Fund Activity.”State, local and private recipients of NAHTF grants will have to match $1 for every $2 received. Unless they utilize federal money to match the NAHTF grant, then it is $1for $1.H.R. 2895 was marked up out of the House Financial Services Committee and awaits a floor vote.B. VA Loan LimitsC.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 of these 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 capped at the conforming loan rate of $417,000.”VI. Fannie Mae & Freddie Mac IssuesA. High-Cost Conforming Loan Limit & GSE ReformC.A.R. Policy:C.A.R. supports GSE oversight reform and creation 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 legislation may 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 the Federal 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 thefinal version is a 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 conformingloan limit would be capped at 150% of the national limit, $625,500.Senator Dodd stated his intent to move a GSE reform bill in his Committee, though no timeline was set. The Administration stated its willingness to accept a high-cost conforming loan limit provision that is temporary to address the current housing crisis.VII. Other BusinessVIII. Adjournment