Real Estate Finance Committee
Grand Nave Ballroom, Gardenia Room
Sheraton Grand Hotel
Sacramento, CA
Thursday, June 4, 2009
9:00 AM – 11:20 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. REO Advisory Group Report: Robert Bailey, Chair

III. State Issues

A. Anti-Deficiency Protection Expansion*

B.  Mortgage Loan Originators
1. AB 34 (Nava), SB 36 (Calderon); SAFE Act implementation - This bill is one of at least three bills attempting to implement the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE ACT) that requires states to set up a mortgage loan originator law that complies with new federal requirements. AB 34 would require an additional mortgage loan originator endorsement (license) that would be renewed annually. Real estate licensees that act as mortgage loan originators would continue to be regulated by the Department of Real Estate (DRE). These licensees would be required to complete continuing education courses related to mortgage lending and would be required to submit an annual business activities report to the DRE. C.A.R. supports the endorsement approach of AB 34 because it will result in the least disruption of existing systems and minimize compliance costs to both the state and individual licensees. (see also, SB 36 and SB 491)

Position: Support
Status: Assembly Appropriations Committee

2. AB 33 (Nava); Financial Services "super agency" consolidation - This bill would abolish the Department of Real Estate, the Department of Corporations, the Department of Financial Institutions, and the Office of Real Estate Appraisers. AB 33 proposes to transfer the powers, duties, purposes, jurisdiction and responsibilities of those departments to a new "Super Department" of Financial Services, which would be a newly created overarching department. C.A.R. opposes AB 33 because the function of a real estate licensee is not just to provide financial services, but also to list and show houses for sale, sell or manage investment properties and raw land, and manage and oversee residential rental properties. Real estate licensees, regulated by the DRE, should not be blended in with the banks, credit unions, consumer finance lenders, residential mortgage lenders and pawnbrokers because, unlike these other licensees, real estate licensees are individually licensed agents that have a fiduciary agency relationship with their clients.
       
Position: Oppose
Status: Assembly Appropriations Committee

3. AB 260 (Lieu); Restrictions on higher cost loans - AB 260 is a re-introduction of AB 1830, which was vetoed by the Governor, and opposed by C.A.R. last year. Like its predecessor, AB 260 would create a new one-sided attorney fee rule that would only allow successful plaintiffs to collect attorney fees. This bill would create an unequal standard that does not hold ALL loan originators to the same rules and restrictions.  It would disadvantage mortgage brokers originating loans but not residential mortgage lenders, like Countrywide to the same extent. C.A.R. opposes AB 260 because it will make home loans more difficult to obtain for legitimate, qualified, borrowers. Additionally, because AB 260 provides attorney fees to prevailing plaintiffs, but not prevailing defendants, it will encourage litigation.

Position: Oppose Unless Amended  
Status: Assembly Appropriations Committee

4. AB 329 (Feuer), SB 660 (Wolk); Reverse Mortgages - AB 329. This bill would enact the Reverse Mortgage Elder Protection Act of 2009. Under AB 329, any person who offers, sells, or arranges the sale of a reverse mortgage to an elder owes a fiduciary duty to that elder. Should any person sell an inappropriate reverse mortgage, they would be subject to damages caused by that breach to the borrower. Lenders would be required to provide prospective borrowers with a list of nonprofit counseling agencies and to disclose any payment arrangements or business affiliations between the lender and a counseling agency. The author removed the provision of the bill that would have permitted borrowers rescind a reverse mortgage within 30 days of the contracts execution, which satisfied C.A.R.'s concerns. C.A.R. is now neutral on AB 329.

SB 660 provides that anyone who helps sell a reverse mortgage owes the prospective borrower a duty of honesty, good faith, and fair dealing. C.A.R. opposed SB 660, as introduced, because it contained an overly broad class of people charged with the new duties created by the bill. The bill automatically made anyone (i.e. neighbors, REALTORS®, barbers, grocery store clerks, etc.) "recommending" a reverse mortgage into a fiduciary that would have been subject to liability. Additionally, the list of questions to determine the suitability of a reverse mortgage required so much information that it could have posed a violation of other privacy protections in current law. SB 660 was amended to remove the objectionable language, and now requires anyone anticipating compensation for recommending the purchase of a reverse mortgage to reasonably believe that the borrower understands the risk, benefits and alternatives to a reverse mortgage. With these amendments, C.A.R. has removed its opposition.

5. AB 919 (Nava), Recordation of originator license information - Beginning January 1, 2010, this bill would prohibit county recorders from recording a deed of trust that is secured by residential real property if a rider is not included that identifies the name and license number of the appraiser, lender, loan originator, and real estate broker involved in the transaction. C.A.R. is seeking amendments to clarify that the broker must only be identified when he or she is involved in the loan.

Position: Amend  
Status: Assembly Appropriations Committee

6. AB 1160 (Fong), Translated disclosures - Existing law requires any party that facilitates the negotiation of a contract to provide translated copies of that agreement if the negotiations were conducted in Spanish, Chinese, Tagalog, Vietnamese, or Korean. This bill requires anyone that negotiates designated types of consumer contracts or agreements in any language other than English, to provide a translation of that contract or translated summary produced by a regulator, to the buyer or seller in the contract's primary language. AB 1160 applies to loans, extensions of credit secured by real property and all rental agreements and leases. The bill would also impose civil penalties against any person who fails to deliver the translation. The bill has a delayed effective date of January 1, 2010. C.A.R. is concerned that AB 1160's expanding this requirement to all languages would place an undue burden on real estate licensees in California, where there are hundreds of languages and dialects spoken. C.A.R. is currently working with the author to reach an equitable solution involving use of standardized state produced disclosure translations modeled after DRE forms.

Position: Amend
Status: Assembly Floor

C. Loan Modifications
1. AB 764 (Nava), SB 94 (Calderon) Advance fee prohibitions - Existing law prohibits the taking of an advance fee by a real estate broker unless the licensee's contract has been reviewed and pre-approved by the Department of Real Estate (DRE). AB 764 and SB 94 would impose a complete prohibition on the taking of an advance fee when modifying or arranging a loan. C.A.R. will oppose both bills until amended to include an exception for DRE approved fee contracts.

2. DRE Advance fee contract regulation -  Update on DRE regulation and legislation (see AB 764, SB 94) that affect the ability to contract for or collect a fee for loan modification work prior to the new loan being completed.

3. AB 350 (Lieu); Payment services - This bill is designed to create a new license and regulatory scheme for debt settlement services that manage the repayment schedules of troubled borrowers beginning January 1, 2011. AB 350 could apply to REALTORS® and require an additional "debt settlement services provider" license if the licensee negotiates a new payment schedule with the borrowers existing lender. Conversely, the bill would not require a broker to obtain a new license if they negotiate a new loan or refinance the original note with a different lender. C.A.R. will oppose AB 350 until it is amended to include, in the bills list of exemptions, a broker operating within the scope of his or her license - such as a DRE licensed mortgage broker. The author has indicated a willingness to accept such an amendment.

D. Property Maintenance Ordinances Update -  C.A.R. Leadership has directed staff to seek introduction of C.A.R.-sponsored legislation to address local property maintenance ordinances.
1. SB 633 (Wright), C.A.R. Sponsored legislation - A bill has been identified as a C.A.R. vehicle, and amendments are in process to make the existing statewide rule for maintenance of post-foreclosure properties pre-emptive of local ordinances and will provide an REO owner notice and opportunity to repair before fines for violation can attach. The amendments will also ensure that liability for maintenance of pre-foreclosure property follows the legal owner, and is not inherited by the foreclosing beneficiary or its agent. Finally, the amendments will modify the statutory Notice of Default or Notice of Sale recording to include contact information for the foreclosing entity’s designated property manager. C.A.R. will attempt to create a consensus with lenders, trustees, and local government on the proposal.

2. Housing California model act proposal pending - Housing California is working with individual code enforcement officials and mortgage lenders to create a model ordance that would force foreclosing lenders to maintain pre-foreclosure and REO properties.

E. Other
1. AB 111 (Niello), Cancellation of mortgage indebtedness tax safe harbor -  The federal government enacted the Mortgage Debt Relief Act of 2007 that permitted 3 years of mortgage debt relief by not requiring borrowers to pay income tax on debt forgiven in a “short” sale. In late 2008 the federal government extended this relief through December 31, 2012. Last year, California enacted SB 1055 which provided conformity with the federal statute for the 2007 and 2008 tax years. AB 111 would fully conform to the federal rule and extend debt forgiveness on "phantom" income through December 31, 2012.

IV. Federal Issues

A. Discussion Items
1. Banking Bill
Congress has passed and sent to President Obama legislation that would:

• Extend the increase in the FDIC’s deposit insurance of $250,000 until the end of 2013.
• Ease eligibility requirements and fees for the Hope-for-Homeowners program, which has failed to help keep people in their homes.
• Increase the FDIC’s borrowing authority from $30 billion to $100 billion. 
• Protect lenders and servicers who participate in mortgage modifications from lawsuits by investors.

What the final draft of the legislation does not include is a “cramdown” provision.  A cramdown provision was included in the first bill that passed the House; stiff lobbying on the part of lenders was successful in stripping the provision from the Senate bill and final legislation.  Both NAR and C.A.R. expressed to Congress our opposition to the House language.

This has likely bought lenders until the end of the year to prove they are able to make massive loan modifications without the threat of bankruptcy court judges being able to reduce the mortgage principal.  If Congress feels lenders and servicers failed to voluntarily modify an appropriate amount of mortgages, they will likely bring the cramdown issue up again.

2. Mortgage Reform
On May 7, the House passed HR 1728, the Mortgage Reform and Anti-Predatory Lending Act, by a vote of 300 – 114.  While the legislation was quickly moved and passed in the House, Senator Christopher Dodd, chair of the Senate Banking, Housing and Urban Affairs committee appears to be in no rush to pass the legislation.  Dodd believes that with the current lack of a subprime market and the tighter underwriting standards lenders are now using, there is not an immediate need for the legislation.  Senator Dodd believes they will eventually work their way to the bill, but he views other issues as more pressing.

HR 1728 would:

• Prohibit steering incentives in connection with origination of mortgage loans (YSP)
• Prescribes minimum standards for residential mortgage loans, including a mandatory net tangible benefit to the consumer for refinancing a residential mortgage loan.
• Creates liability for assignee and securitizers
• Prohibits certain prepayment penalties, mandatory arbitration, mortgage loan provisions that waive a statutory cause of action by the consumer, and mortgages with negative amortization.
• Requires lenders to maintain a 5% “skin in the game” of non-prime loans.  The hope of this provision is to force lenders to keep part of the risk of a loan, thus encouraging them to do safer loans.

It is unclear when or if the Senate will address mortgage reform and what a Senate bill may or may not have in it.

3. Foreclosure Rescue Scams
On May 6, 2009, the Subcommittee on Housing and Community Opportunity held a hearing titled “Legislative Solutions for Preventing Loan Modification and Foreclosure Rescue Fraud.”  Chairing the hearing was California Democrat Maxine Waters. 

Over the last two years, California and other states that have been hit hard by the housing crisis have seen a proliferation of mortgage modification and foreclosure avoidance scams.  Often these scams require people to pay high fees upfront or even go so far as to have homeowners sign over their rights to the property. 

While California has taken steps to crackdown on fraudulent activity, D.C. has taken notice of the problem and there is strong support for Congress to take action to protect consumers.  There is however a divide over whether or not to completely prohibit loan modification consultants or to create minimum standards and regulations.  It is unclear if Congress will get around to passing legislation addressing this issue, though several bill have been introduced.
 
4. Home Valuation Code of Conduct
On May 1, 2009, the Home Valuation Code of Conduct (HVCC) officially went into effect requiring all Fannie Mae and Freddie Mac loans to abide by the new appraisal standards.  The new HVCC explains how appraisals must be performed on all conforming loans for the GSE.  While the intention of the new rule is to prevent collusion and intimidation of appraisers by outside parties, it remains to be seen what the long term benefits and downside of the HVCC will be.

For more information, members may visit Fannie Mae’s HVCC FAQ here.

5. FHA Update
a. FHA’s market share of new mortgages has skyrocketed from approximately two-percent in 2006 to roughly one out of every three loans today.  In California, there have been over 90,000 FHA loans performed in Fiscal Year 2009 (which started on October 1, 2008), this is almost double the FHA loans originated in California for the entire FY 2008.  This meteoric rise in new FHA loans, while good for many homeowners, has created a breeding ground for abuse and placed the U.S. taxpayer at risk.

FHA has seen an increase in both “delinquent” loans and “serious delinquency” loans (loans at least three months overdue).  The FHA, which must carry a two percent reserve, now faces the serious possibility of having to ask Congress for funds; a first in the history of the FHA. 

Because of this, Congress is likely to look at reforms for the FHA, including:

• Premium structure
• Amount of downpayment
• FHA loan limit
• Underwriting standards
• And other factors that may be contributing to the problems at the FHA

Another problem facing the FHA is an increase in fraud.  Because lenders collect an origination fee on FHA loans and are 100 percent insured against losses on a default, many lenders are ignoring sound underwriting guidelines and some lenders’ FHA default rates are over 50 percent.

Because Congress spent a great deal of time and effort passing FHA reform in the 110th session of Congress, it is unclear if they will take up FHA reform again this session.  HUD may decide to address some of these issues utilizing regulation.

b. FHA has recently announced they would begin working to accept the $8,000 first-time homebuyer tax credit up front through bridge loans or state Housing Finance Agencies.  HUD Secretary Donavan made the announcement at NAR’s Midyear meetings in D.C.; though HUD has not released the full details of how the program will be implemented.

c. On May 15, 2009, HUD announced that it is temporarily extending the property flipping waiver to May 10, 2010 for FHA loans. Under the waiver, homes that were foreclosed on and are being sold by the mortgagee or on its behalf may be purchased by FHA borrowers without regard to the 90-day seasoning period. The waiver does not apply to entities that purchase foreclosures either singly or in bulk for resale. Subsequent sales of such properties will continue to be subject to the standard regulatory requirements.

HUD first announced the waiver on June 9, 2008, and the waiver was to be in effect for only one year. HUD exempted from the property flipping rules properties sold by HUD through its Real Estate Owned activities, new homes being sold by builders and properties being sold by relocation companies and the property owner's employer as part of a job relocation. Certain properties were exempted from this rule.

6. Making Home Affordable Program
In February, President Obama introduced his Making Home Affordable program; his administration’s proposal to help ease the current housing crisis.  The original announcement contained two programs; the first was a refinance program for homeowners with conforming loans that couldn’t take advantage of the current low interest rates because their home had depreciated in price.  The second is a mortgage modification program intended to get homeowners in default or at risk of default into mortgages they could afford.  Due to the flood of modification and refinance requests lenders have been slow to get the program up and running at full speed.

Summary of Guidelines

In May the President announced his Foreclosure Alternatives and Home Price Decline Protection.  This program was intended to incentivize servicers to expedite short sales and deed-in-lieu of foreclosures, standardize the short sale process, address the problem with junior liens, and offset some of the loss to lenders who do loan modifications in areas with declining home prices.  It is hoped that if homeowners are unable to keep their home, this program will move the distressed property quickly through the market.

Foreclosure Alternatives Program Summary

7. GSE and FHA Loan Limits
California Congressmen Brad Sherman and Gary Miller have introduced H.R. 2483, the Increasing Homeownership Opportunities Act.  The legislation would make permanent the current GSE and FHA loan limit formula and caps.  Currently these loan limits are set at 125% of a local area’s median home price, capped at $729,750.  The floor for the GSEs is $417,000 and for FHA the floor is $271,050.  These limits will expire on December 31, 2009.  The legislation also includes wording that encourages the Federal Housing Finance Agency and HUD Secretary to not decrease an area’s loan limit should that area’s median home price decline. 

If Congress does not pass this or similar legislation by the end of the year, the 2010 loan limits will fall to 115% of an area’s median home price capped at $625,500.  The floors for the GSE and FHA would remain the same.

B. Reporting Items

1. Banks in Real Estate
On March 11, 2009, President Obama signed into law the FY2009 Omnibus Appropriations Act that permanently prohibits banks from entering the real estate brokerage and management businesses.

2. GSE Reform
While there are many ideas being floated about what Congress should do in regards to the future of the GSE (Fannie Mae and Freddie Mac) now that they are in conservatorship, Congress itself does not appear ready to begin moving any legislation.  Without proposed legislation introduced, it is still too early to know how Fannie and Freddie will be brought out of their current state of conservatorship.  Making the issue more difficult is the increased reliability by the housing market for the GSE to maintain an affordable and stable supply of capital due to the lack of private investors.

3. Regulatory Reform
While everyone agrees regulatory reform is necessary; it is almost as universal that no one agrees how.  Congressman Barney Frank and Senator Christopher Dodd, chairs of their chambers’ committees that would oversee the endeavor have failed to agree on the scope and speed at which regulatory reform should move. 

At the end of May the President signed into law S. 386, the Fraud Enforcement and Recovery Act of 2009.  Included in the bill is a provision that will create a Financial Crisis Inquiry Commission to review and determine what the causes were of the financial crisis and to make regulatory recommendations.  Due to the creation of this Commission we may not see Congress make an aggressive effort to move broad regulatory reform prior to the Commission’s report on December 15, 2010.  Congress may address smaller regulatory issues this session, but they may choose to hold off on full regulatory reform until the 112th session..

4. National Flood Insurance Program
In March 2009, Congress passed the fiscal 2009 omnibus budget.  The bill included a provision to extend the National Flood Insurance Program to September 30, 2009.  The extension is needed to give Congress more time to work through remaining differences over long term reforms to the program.  Without flood insurance, property owners in over 10,000 communities across the U.S. would be unable to finance a mortgage.

5. RESPA
On April 20, 2009 the United States District Court for the Northern District of Alabama, Southern Division, filed a memorandum opinion in Busby v. JRHBW Realty, Inc. d/b/a Realty South. The court concluded that a $150 Administrative Brokerage Fee charged by Realty South violated Section 8(b) of RESPA. Below is a password protected link to NAR’s General Counsel response to this ruling.  Members who have questions regarding this ruling are encouraged to contact C.A.R.’s legal hotline for assistance.

Laurie Janik’s response to Busby v. JRHBW Realty, Inc. D/B/A/ RealtySouth rulling

6. VA Loans
As the housing market works its way through the current crisis, many veterans are facing housing problems that non-military homeowners and homebuyers don’t have to.  As such we are providing a list of links that may prove useful to both REALTORS® who work with veterans and to the veterans themselves.  For additional information, the VA Regional Loan Center for California is located at:

Department of Veterans Affairs
VA Regional Loan Center
3333 N. Central Avenue
Phoenix, AZ 85012-2402
http://www.vba.va.gov/ro/phoenixlgy/

VA Frequently Asked Questions

General Eligibility Questions & Obtaining a Certificate of Eligibility

Veterans with Mortgage Problems

General VA Loan Web Page

7. Natural Disaster Insurance
REALTORS® have work for a number of years to get Congress to pass legislation that would create a federal Natural Disaster Insurance backstop to the private market.  Currently there is no proposed legislation in the 111th session of Congress, but NAR is working with a number of Representatives and Senators to craft and introduce legislation this year.  The purpose of the legislation will be to ensure that private insurance companies are able to cover claims during catastrophic natural disasters, such as large earthquakes or hurricanes like Katrina.

8. New Fannie Mae CEO
On April 20, 2009, Michael J. Williams was promoted by Fannie Mae as their President and Chief Executive Officer.  Williams was the executive Vice President and Chief Operating Officer responsible for the functions of Technology, Enterprise Operations, Hunan Resources, Community Charitable Giving, Compliance and Ethics, Corporate Facilities and Security, and Corporate Procurement.

V. Other Business

VI. Adjourn