Agenda Summary
Agenda Summary - Real Estate Finance Committee

Hyatt Grand Champions
Indian Wells Ballroom & Joshua Tree Room
Palm Springs, CA
Thursday, January 24, 2008
9:00 AM – 11:30 AMPresiding:
Patricia Bouie-Hinds, Chair
Jimmy La Peter, Vice Chair
Quincy Virgilio, Vice Chair
Malcolm Bennett, Executive Committee Liaison
Beth Peerce, NAR Committee Representative
Diane Carlton, GAD Liaison

Staff:
Matt Roberts, Federal Governmental Affairs Manager
David Milton, Legislative AdvocateI. Opening CommentsII. Troubled Mortgage/Foreclosure Task ForceReportIII. NAR Special GuestA. Jeff Lischer, Manager, Financial ServicesVI. State Issues
A. C.A.R. Sponsored Legislation1. AB 1356 (Houston) Agents of Equity Purchasers -Existing law effectively precludes legitimate agents from representing investor purchasers of properties that are in foreclosure. The prohibition is the inadvertent result of requiring buyers’ agents to purchase a bond for the sale equal to 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 reached among interested parties shortly before the Legislature recessedthat 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. 
Status: Assembly Judiciary CommitteeB. 2007 Legislation of Others; must be voted out of the “House of Origin” not later than January 31, 2008, to “stay alive” in 2008.1. AB 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 must be 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 Committee2. AB 628 (Price) Residential Mortgage Loans and Gift Prohibitions- This is a proposal to prohibit real estate brokers and residential mortgage lenders or servicers from making a giftto 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 aviable bill.
C.A.R. Position: Oppose       Status: Assembly Banking & Finance Committee3. AB 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,or excessive fees, to refinance their loans into fixed rate loan products. The borrower and holder of the loan would have to agree to criteria established by CalHFA. C.A.R. is currently watching the bill and has not taken a position because its author hasindicated the bill will require a significant amount of additional research and consultation with the lending industry before being finalized.
C.A.R. Position: Not Rated File                         Status: Assembly Appropriations Committee4. AB 1677 (Calderon, C.) Internet Banking Transactions- Opposed by virtually all of the financial institution 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. C.A.R. Position: Watch     Status: Assembly FloorC. Bill Enacted in 2007SB 385 (Machado) Real Estate Mortgages – This bill states that the Legislature declares that the following documents contain 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 MortgageLending, 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 MortgageRegulators.(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 RealEstate, 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 & ProfessionsCode 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: Signed by GovernorV. Federal IssuesA. Action Items1. National Affordable Housing Trust Fund (Please see IBP )2. FHA Risk Based Pricing (Please see IBP )3. National Flood Insurance Program; Non-Primary Residence Subsidies and Wind Coverage (Please see IBP )B. Discussion/Reporting Items1. Subprime and Mortgage Reform (Please see IBP )2. 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. In recent years, the intensity of large natural disasters has made the acquisition of adequate homeowners’ insurance very 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 longerafford to make payments. 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 earthquake insurance.  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 November 8, 2007, the House passed the Homeowners Defense Act of 2007, H.R. 3355, by a vote of 258-155.  The legislation is the latest attemptto 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.
While numerous bills have been introduced in the Senate, the Banking, Housing, and Urban Affairs Committee has yet to address any of them.  It isstill uncertain what, if anything, Dodd will do.3. 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. 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 267 cosponsors and S. 413has 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.  In December, Congress passed a two-year moratorium on banks in real estate.4. 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 supportingthe 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 by a 371-16 vote.  On May 10, 2007, Senator Sherrod Brown (D-OH) introduced companion legislation in the Senate, S. 1356.  S. 1356 has been referred to the Senate Banking, Housing, and Urban Affairs Committee.  On October 4, 2007, the Senate Banking, Housing, and Urban Affairs Committee held hearings on this issue.  Senators from Utah have held up proposed legislation due to the fact the majority of ILCs are chartered in Utah.  While these Senators have hinted at accepting a compromise; it is still unclear what if any compromise may be made.VI. FHA IssuesA. FHA Reform
C.A.R. Policy: C.A.R. supports increasing FHA’s loan limit, allowing FHA to treat all condos as single family homes, 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 shares in high-cost areas.  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 conformingloan limit.  California Congressmen Gary Miller and Dennis Cardoza added 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 December 14, the Senate passed S. 2338, the Senate FHA reform bill by a vote of 93 – 1.  The Senate version differs from the House version in a few ways; including, a requirement for at least1.5% down and increasing the FHA loan limit to 100% of conforming ($417,000).The Senate and House are expected to Conference in February to work out the differences between the two bills.  Senator Feinstein voted in favor of the FHA reform, and while Senator Boxer was unable to make the vote, she submitted for the Senate record a letter of support for both the bill and higher FHA loan limits.VII. VA & HUD IssuesA. RESPA Reform
A new proposed rule was submitted by HUD to OMB on November 8, 2007. OMB has up to 90 days to clear it or recommend revisions. The proposal includes a four-page (letter size) Good Faith Estimate (GFE) that would standardize the GFE and enhance the disclosure of loan terms, including: the initial interest rate and monthly payment, whether the interest rate and principal balance can increase and the maximum amount they can increase, whether the loan has a prepayment penalty and/or a baloon payment, the yield spread premium, if any, and the total estimated settlement charges. HUD's approach is to provide more loan information in a consumer-friendly format that will enable consumers to lower costs and shop for the most appropriate loan. The proposed rule also identifies charges that can and cannot change at settlement, limits the amount of permissible changes and modifies the HUD-1 to facilitate comparison of the estimated charges on the GFE and the final charges on the HUD-1. Finally, the proposal includesa "Closing Script" as an Addendum to the HUD-1 that compares actual charges at closing with the estimated charges on the GFE and details the loan terms for the specific mortgage loan the borrower takes out at closing. The Closing Script would be read to the borrower by the settlement agent at closing, with a copy provided to the borrower. In conjunction with the proposed rule, HUD intends to seek legislative changes to RESPA that will require delivery of the HUD-1 to the borrower three days prior to closing, establish a uniform statute of limitations applicable to governmental and private actions under RESPA, and increase civil money penalties for specific RESPA sections and provide authority to HUD and State regulators to seek injunctive and equitable relief for violations of RESPA.B. Home Ownership Opportunities for Veterans
C.A.R. Policy: C.A.R. supports amending the Qualified Veteran Mortgage Bond (QVMB) qualifications to allow veterans who enlisted after 1977 to have access to low interest rate and low cost home loans financed by these bonds.  C.A.R. also supports increasing the VA loan limit, in high-cost areas to allow veterans better access to affordable home loans.In Congress’ final week of work for 2007, both chambers passed a veterans’ benefits bill that will, among other things, amend the qualifications for QVMB.  So long as applicants are qualified and apply within 25 years of their discharge, they will have access to these affordable loans.  The President is expected to sign the bill in early 2008.On May 16, 2007, Senator Hillary Clinton (D-NY) and Congressman Patrick Murphy (D-PA) introduced companion billsin 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 valuedup to $625,000. The current program requires loan fees and is capped at the conforming loan rate of $417,000.”VIII. Fannie Mae & Freddie Mac IssuesA. High-Cost Conforming Loan Limit & GSE Reform
C.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.On May 22, 2007, the House passed H.R. 1427 – GSE Reform Bill.  Included in the final 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 priceis above the $417,000 conforming loan limit.  The high-cost conforming loan limit would be capped at 150% of the national limit, $625,500.  Beyond increasing the loan limit, the bill will also overhaul the regulatory oversight of the housing government-sponsored enterprises (GSEs) -- Fannie Mae, Freddie Mac, and the Federal Home Loan Banks system (FHLBanks). The proposed legislation would create a strong, independent safety and soundness regulator with broad powers analogous to current banking regulators.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.IX. Other BusinessX. Adjournment
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