Marriott Hotel
Monterey, California
January 21, 2009
3:30 pm – 5:15 pm

Presiding:
Steve White, Chair
Cas Pinkowski, Vice Chair
Georgia Richardson, Vice Chair
Le Francis Arnold, Committee Liaison

C.A.R. Staff:
Dave Milton
Matt Roberts

I. Opening Comments

II. State Legislation

A. Homebuyer Tax Credit Legislation to be sponsored by CBIA in 2009*
As elaborated upon in the attached IBP, the California Building Industry Association (CBIA) intends to introduce a bill during the 2009 session of the California Legislature to create a "Homebuyer Tax Credit" for purchasers of newly constructed  homes in California. The options for a C.A.R. position on this proposed legislation include supporting the CBIA proposal, opposing the proposal unless it is amended to include all home purchases, opposing the proposal unless it is amended to include first-time homebuyer purchases of new and re-sale homes, or explore other options. The Housing Opportunity Committee is the lead Committee on recommending a C.A.R. position for this CBIA legislation.

B. Discussion of any key bills introduced by the date of the meeting.

C. 2009-2010 Housing Committees Membership for Senate and Assembly

III. Legislative Relationships- Any Committee Members Interested in Becoming Key Contacts?

IV. State HCD Search for Permanent Source(s) of Funding for Affordable Housing - An Update
The State Department of Housing & Community Development (HCD) conducted 11 regional hearings throughout the State between February 1 and June 30, 2008, in search of recommendations from the Public regarding a "permanent source of funding" for affordable housing. More than 50 suggested sources were recommended by various participants in these HCD-sponsored meetings. HCD subsequently reduced the 50+ suggested sources to 10 that it would consider reviewing with the five "Stakeholder Groups" HCD had identified as the primary "players" in this discussion: C.A.R., CBIA, The League of Cities, the California State Association of Counties (CSAC), and the California Chamber of Commerce. These 10 included such options as creating a California Secondary Market, Reassessment of Commercial Property, a Commercial Linkage fee, a Document Recording Fee on all Real Estate Transactions, a fee on all recorded birth and death certificates, an entertainment tax, a hotel tax, a millionaire tax, a rollback of the mortgage interest deduction, and a transfer fee on residential and commercial property transactions.

After meeting with all of the Stakeholder Groups, C.A.R.'s meeting occurring on December 17th, and the above-listed options were reduced to three that HCD is considering recommending to the Governor:

(1) Creation of a California Secondary Market to purchase or guarantee home loans that are outside the parameters of the national FHA guarantee.

(2) Imposition of a Document Recording Fee, to be paid by the party recording the real estate sales transaction document and collected at the close of escrow of all real estate transactions.

(3) A loan guarantee fund for loans between $625,000 and $1.5M. The fee for such loans would go to the Affordable Housing Fund.

In its meeting with HCD on these proposals, C.A.R. indicated it could support #1 and #3, but would vigorously oppose #2.

In place of #2, C.A.R. communicated to HCD that its current policies include only the following acceptable approach to utilizing imposition of recording fees to support specific programs:

In addition to any other recording fees specified in this code, a fee of up to $______ shall be paid at the time of recording any document, excluding any deed, instrument, or writing subject to the imposition of a documentary transfer tax as defined in Section 11911 of the Revenue and Taxation Code, and any document required to facilitate a transfer subject to the documentary transfer tax. (Emphasis added.)

C.A.R. continues to await a response from HCD regarding this option to its proposed Recommendation #2.

V. Federal Issues

A. Discussion Items
1. 11th Session of Congress Agenda
a.Stimulus Package
As Congress meets for their 111th session they will begin by working to fix a U.S. housing market and an economy that many believe is the worse than at any time in history since the Great Depression.

In the hope of preventing another depression, Congress is expected to begin the 111th session with a large economic stimulus package. This package may cost taxpayers anywhere from $600 billion to $1.2 trillion and will likely include funding for various sectors of the economy that are struggling financially.

The stimulus package is expected to include:

• GSEs and FHA Loan Limits: On January 1, 2009, the GSEs loan limit was reduced from the greater of $417,000 or 125% of an area’s median home price capped at $729,750; to the greater of $417,000 or 115% of an area’s median home price capped at $625,500.  For the FHA the loan limit was reduced from the greater of $271,050 or 125% of an area’s median home price capped at $729,750; to the greater of $271,050 or 115% of an area’s median home price capped at $625,500.

C.A.R. is working with NAR and the California Congressional Delegation to retroactively extend the 2008 loan limits until the end of 2009.

Please see the attached list of California’s Metropolitan Statistical Areas and their 2008 and 2009 loan limits.

• Bankruptcy Reform: Bankruptcy reform is another issue that will likely be included in this package. If it is included there will be a very strong push by Democrats to include a provision giving judges the authority to cramdown mortgage principles for primary residences. Senator Durbin (D-IL) has already introduced his Bankruptcy Reform bill with Senators Boxer and Feinstein signed on as cosponsors.
• NAR’s Four Point Plan: At the NAR November Business meetings in Orlando, NAR released their Four Point Plan for the nation’s housing market.NAR has done a full Call-For-Action to get Congress to include their plan in any stimulus package passed.

NAR’s four point plan:

o Make the $7500 first-time homebuyer tax credit available to all buyers and eliminate repayment requirements. The credit's limited availability and repayment requirement severely limit the credit's use and effectiveness.
o Make the 2008 FHA, Fannie Mae and Freddie Mac loan limits permanent. New rules for 2009 will reduce them. Now is not the time to limit mortgage affordability.
o Get the Treasury relief program back on track and target more funds to mortgage relief. Create a federal mortgage interest buy-down program to make below-market rates available and stabilize home prices.
o Permanently bar banks from engaging in real estate brokerage and management. The banks have proven they have enough to do to simply manage the loan process. Banks should not manage home sales and purchases.

Congress is unlikely to address the banks in real estate issue in this legislation, and the interest rate buy-down may be done by regulators without Congressional action.

• Foreclosure Mitigation: Senator Dianne Feinstein has introduced legislation, and Representative Maxine Waters stated her intention to introduce a companion bill in the House, that codifies the FDIC mortgage workout program currently being utilized by IndyMac. The purpose of this would be to systemically target troubled mortgages that could be modified instead of doing them one at a time.
• Tax Incentives: Included in the tax provision section could be $300 billion or more in tax breaks for individuals and businesses.  This could include: a tax credit on the first $8,100 of wages ($500 individual/$1000 couple), a decrease in the payroll tax, enhancements to the Child Tax Credit, allow the carry-back provisions to be extended to a 5-year period, extended bonus depreciation, and an extension of the small business expensing limit at $250,000.
• Other: The package is also expected to provide funding for infrastructure projects, money for cash-strapped states, and other projects that are expected to either stimulate the economy or create jobs.

b. GSE Reform
The future of the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac is expected to be addressed by Congress also. The questions facing Congress on the future of the GSEs, taken into government conservatorship in September of 2008, are daunting. Currently the GSEs own or guarantee approximately $6 trillion worth of home mortgages. Congress must determine if the GSEs and the government will play as large of a role in the future of the nation’s housing market and in what form.  Some of the questions Congress will be forced to answer while determining the future of the GSEs include:

• Can the GSEs continue in a quasi private/public forms?
• Should the GSEs be restructured in a manner that more closely resembles a public utility company?
• Does the market need both Fannie and Freddie? Or can they be combined?
• Are Fannie and Freddie salvageable? Or do they need to be eliminated and an entirely new entity created?
• What role should the government play in the future of the nation’s mortgage market?
• What role should the government play in the current housing crisis?  Currently, many legislators are proposing the utilization of the GSEs in purchasing troubled mortgages from private lenders and having the GSEs burden the cost and work of loan modification.
• What role should the GSEs play in promoting “affordable housing”?

These questions are merely the tip of the iceberg on this issue. C.A.R. has and continues to support efforts by the government to ensure a strong and viable secondary market to the nation’s mortgage market. The current down market has demonstrated the need for a government presence in the mortgage market to fill the void created by the private market’s tightening of available capital.

c. Financial Regulation Reform
The issue of financial regulation reform is not a new issue.  Many administrations over the past three to four decades have advocated for the reforming of the nation’s regulatory structure that oversees the financial and lending industry. In March 2008, Secretary Paulson and the Treasury released a reform blueprint that would eliminate many regulatory agencies in an attempt to simplify and streamline the current structure.  Originally intended to help the U.S.’s financial system keep up with the rest of the world, reform is now seen as a necessity to ensuring safe and viable financial and lending markets. 

While the issue isn’t old, the current attempt by Congress to reform the existing structure is only in its infancy with hearings only now beginning to take place.  Currently, regulators oversee different depository institutions, insurance companies, companies that deal with securities and futures trading, and finance companies.  This has created an alphabet soup of regulators that has led to uneven playing fields for many companies, confusion for the public, and a sometimes slow and cumbersome response to any crisis.

Along with restructuring the regulatory oversight of these industries, Congress will be forced to address the question of what should be regulated. Once viewed as a wonderful marvel of financial innovation, derivatives and collateral-debt-obligations (CDO) are now widely viewed as being a major culprit for the collapse of many businesses.  While Congress can mandate these instruments now be regulated, Congress must create a system that will give flexibility and speed in analyzing the need for regulation of future financial instruments not yet created.  Some have called for a financial instrument safety regulator to determine the safety of new instruments; much like the FDA oversees the safety of prescription drugs prior to their availability.

2. RESPA
On November 13, 2008, HUD announced the release of their new RESPA final rule.There will be a one year implementation period with mandatory compliance beginning January 1, 2010. 

The purpose of RESPA is to provide consumers with information about the real estate mortgage transaction and the costs associated with it; and to prohibit certain practices, such as referral fees between settlement service providers, that result in higher costs and reduced quality to consumers.

Some changes to be implemented by the new rule include:

• New GFE (Good Faith Estimate) that incorporates the use of charts to give comparative information to consumers and imposes tolerances regarding the change in settlement charges at closing.  The GFE is now three pages and will be required by mortgage lenders and brokers effective January 1, 2010.
• Three categories of settlement charges and subject them to different change tolerances. The first category of fees are subject to a zero tolerance standard and may not exceed their GFE estimate at closing (example: origination charge, transfer taxes).  HUD will subject the sum of the fees in the secondary category to a 10 percent tolerance.  While each individual fee may increase or decrease, the sum of the total increases may not exceed 10 percent at closing (example: government recording fees, settlement service fees).  The last category has no restrictions under the final rule, so they may increase by any amount between the GFE and closing (settlement services, daily interest charges, and homeowners insurance).
• Yield spread premiums will be required to be disclosed on the GFE.
• The HUD-1 is slightly altered to allow consumers to more easily compare their GFE fees to the final HUD-1.
• HUD abandoned their proposed idea of a closing script and will instead require consumers be given a new page three to the HUD-1 incorporating much of the information that was to be in the closing script.

It is unclear if the Obama Administration will make any changes to the new RESPA rule.  While lenders aren’t mandated to comply immediately, many will begin the process of compliance as it will take some time to make the necessary changes.

C.A.R.’s Member Legal Department will be creating a Legal Q&A.

B. Reporting Items 

1. New HUD Secretary
In December, President Elect Obama announced he will be appointing New York City Department of Housing Commissioner Shaun Donovan as the new HUD Secretary. Donovan has an extensive housing background that includes a prior stint at HUD as Deputy Assistant Secretary for Multifamily Housing, researching and writing about the preservation of federally-assisted housing at New York University, and working for Prudential Mortgage Capital as managing director of its FHA lending and affordable housing investments.

VI. Other Business

VII. Adjournment

* An Issues Briefing Paper (IBP) on this Agenda Item is included in the Agenda Packet.