Real Estate Finance Committee
San Carlos Room III - Mezzanine Level
Thursday, January 22, 2009
9:00 AM – 11:30 AM
Presiding: Skip Zeleny, Chair
Ed Herold, Vice Chair
Linda Lee, Vice Chair
Bill Jansen, Executive Committee Liaison
Jeannette Way, NAR Committee Representative
Bielle Moore, GAD Liaison
Staff: Stan Wieg, Staff Vice President
Matt Roberts, Federal Government Affairs Manager
I. Opening Comments
II. State Legislative Issues
A. Evaluating Proposals for Sponsored Legislation*- Please see
included Issues Briefing Paper for factors to consider in making a decision
to sponsor legislation.
B. State Pre-emption of Foreclosure Property Maintenance -
Possible Legislation* - Information only - Please see included Issues
Briefing Paper. The proposal is to consider sponsoring legislation that
will pre-empt local rules that require maintenance of foreclosed properties
(REOs), and require that local rules be no more stringent that the general
parameters of the rule created by the proposed legislation.
C. "Shortclosure" Proposed Sponsored Legislation* - Information
only - The proposal is to consider sponsoring legislation to create a
hybrid between a short sale and a deed in lieu of a foreclosure. This
hybrid would allow a property owner to require a lender to accept a
proposed short sale within a minimum period, or accept a deed in lieu of
foreclosure. The procedure would create an incentive for the lender
by treating junior note holders as "sold out juniors" as to the property,
and thus make the deed in lieu more attractive and keep the juniors from
interfering with the short sale.
D. Mortgage Broker Regulation
1. S.A.F.E. Act implementation; loan originator license* -
[Information only -Please see Issues Briefing Paper, September 2008.]
Federal mandate for state legislation regulating mortgage loan originators
requires California legislation in 2009. DRE, DOC and DFI are collaborating
with the author. State agencies have not yet settled on a proposal.
Two main issues for C.A.R. are:
- Whether the new license should be part of the real estate license, or a
completely separate license which anyone (including DRE licensees) can
- Whether the new license should require a bond or a recovery fund as
evidence of financial responsibility.
2. AB 33 (Nava); Financial Agencies Consolidation -
The legislation is currently in "spot" or intent form, but when amended is
intended to consolidate regulation of financial services regulation in one
agency or under a single set of rules.
3. AB 34 (Nava); Mortgage loan originator licensing
- The legislation is currently in "spot" or intent form and is
intended to serve as the vehicle for implementation of S.A.F.E. Act
E. Governor's Foreclosure Restriction and Loan Workout Proposal -
The Administration has proposed a requirement that mortgage lenders or loan
servicers institute a "robust" loan work-out program modeled after that of
the FDIC (Federal Deposit Insurance Corporation) or Bank of America.
While California cannot legally assert jurisdiction over federally
regulated lenders, it can change the rules for enforcing mortgages, and
those rules apply to all lenders whether they are state or federal
entities. The proposal is to require a lender to wait an additional
three or more months before a foreclosure sale unless the lender is
exempted from the new rule by demonstrating that has an approved default
work-out program in place. Legislation based upon the Governor's
proposal was introduced, but defeated, during the November 2008 special
1. 111th 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
• 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
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
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
• 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
• 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.
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
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
• 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
C.A.R.’s Member Legal Department will be creating a Legal Q&A.
C. Reporting Items
1. Flood Insurance
Unable to pass a National Flood Insurance Program (NFIP) reform bill, the
110th Congress passed a bill to temporarily extend funding for the bankrupt
program until March 6, 2009. With all that will be on the plate of
the 111th Congress, it is unclear and unlikely that a full NFIP reform bill
will be able to get passed prior to the expiration date. This would
require Congress to again extend the NFIP funding for another six-month or
C.A.R. and NAR support Congress’ efforts to pass NFIP reform that would
include wind coverage and keep the program solvent. C.A.R. and NAR
have serious concerns over any proposal that would eliminate subsidies for
primary residences constructed in flood plans prior to the publication of
the national flood plain maps.
2. 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. Senators and Representatives have
committed to introducing similar legislation in the 111th session.
3. 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.
4. GSEs Appraisal Deal with NY AG
Fannie Mae and Freddie Mac (GSEs) reached a settlement on March 3, 2008
with New York State Attorney General Andrew Cuomo and the Office of Federal
Housing Enterprise Oversight (OFHEO, now FHFA) establishing new appraisal
requirements for mortgages the GSEs purchase. The settlement was a
result of Cuomo’s suit against First American for allegedly inflating the
appraised values of homes. Under the revised agreement released on
December 23, Fannie Mae and Freddie Mac agreed to adopt a “Home Valuation
Protection Code.” (Code). The Code establishes requirements governing
appraisal selection, solicitation, compensation, conflicts of interest and
The following requirements will become effective May 1, 2009:
• The GSEs will require appraisals not be provided by mortgage or real
• The GSEs will also require that the lender or broker do not use an
in-house, affiliate, subsidiary or other entity owned by the lender or
broker to perform the appraisal. Some exceptions apply to the in-house
appraiser prohibition. For example, lenders may use in-house staff
appraisers to develop or use internal automated valuation models, or
prepare appraisals for transactions other than mortgage origination
transactions (e.g. loan workouts).
• The lender must provide the borrower with a free copy of the
appraisal report immediately upon completion and no less than three days
prior to the closing of the loan. The borrower may waive this three-day
requirement. However, the lender may require the borrower to
reimburse the lender for the cost of the appraisal.
• It prohibits anyone on the lender’s loan production staff from
selecting or communicating with an appraiser., appraiser company or
appraisal management company relating to or having an impact on valuation
or to provide information to the appraiser that has been given the
assignment before completion of the assignment
• Lenders must establish a telephone hotline and an email address to
receive complaints from appraisers, individuals, or any other entities
concerning improper influencing of appraisers or the appraisal
• Required Notices: Lenders must provide a separate notice of the
hotline and email to appraisers they use AND to borrowers about the
services provided by the Independent Valuation Protection Institute.
A lawsuit has been filed to stay the implementation of the new appraisal
deal by the National Association of Mortgage Brokers. The agreement
terminates 28 months from the date of execution (i.e. July 2010).