Federal Issues Committee
San Jose Ballroom V/VI
San Jose, CA
Thursday, October 8, 2009
3:00 PM – 5:00 PM
Presiding: Don Faught, Chair
Kathy Mehringer, Vice-Chair
Ray Karpe, Vice-Chair
Bill Jansen, Executive Committee Liaison
Allen Chiang, NAR Committee Representative
C.A.R. Staff: Matt Roberts, Federal Governmental
Jeff Keller, Public Policy Analyst
I. Opening Comments: Don Faught
II. NAR Update – Jerry Giovaniello, NAR Senior Vice President
& Chief Lobbyist
III. Member Mobilization – DeAnn Kerr
IV. Report of Action Items from Reporting Committees A. Real Estate Finance
C. Land Use and Environment
D. Equal Opportunity – Cultural Diversity
E. Housing Opportunity
F. Commercial Investment
V. First Impression Issues
A. Discussion Items:
1. Healthcare Reform The healthcare reform debate
heated up over the summer; however, very little was truly
accomplished. As Congress returned to session in September healthcare
remained their primary legislative effort and is likely to remain so
through October at the least. The House is still working on
reconciling their two versions of healthcare reform with a floor vote
expected sometime now in October. The Senate also has to reconcile
their two versions of healthcare reform and will face a tougher challenge
due to slimmer margins of majority, the cloture threshold, and legislation
that caries greater than the two competing House bills.
Currently C.A.R. is monitoring provisions in the bills that would affect
REALTORS® and small businesses. This includes items such as an
individual mandate, an employer mandate, tax breaks to purchase insurance,
and exceptions to the mandates. C.A.R. has the healthcare working
group’s principles that it is also using as a template when evaluating
As of now predicting a timetable for this legislation is near
impossible. Even if the House and Senate quickly reconcile their
versions of healthcare reform, they will still have to pass both of them
and end up in a conference committee to reconcile the House and Senate
versions. If this process drags on too long or if it is viewed that
the minority is stalling instead of negotiating, there is also the chance
that Congress can turn to the reconciliation process and pass healthcare
legislation with a simple majority in both the House and Senate.
Information on healthcare reform is rapidly changing and being
updated. Please check back for updates of this agenda summary and
keep in mind that this information is current from when written and may
have to be updated during the meetings themselves by committee
VI. Taxation Issues
A. Discussion Items:
1. Homebuyer Tax Credit
The current First-time Homebuyer Tax Credit (HTC) expires on November 30,
2009; meaning that in order to be eligible for the HTC the escrow cannot
close past November 30, 2009. The current HTC is:
If the home was purchased between January 1, 2009 and November 30,
- The tax credit is 10% of the purchase price, capped at
- The tax credit does not need to be repaid – the only exception
being if the property is sold within 3-years of purchase.
- You can get the credit if the property is financed by a tax exempt
qualified mortgage issue/bond.
C.A.R. and NAR are working diligently on both expanding and extending the
HTC. C.A.R and NAR want to see the tax credit expanded to all
homebuyers and extended until the end of 2010. Currently, the information
we are hearing is that it is more likely to see an extension of the HTC
through 2010, but not an expansion to all homebuyers due to the increased
costs and need to find offsets.
The HTC has accomplished its primary goal; it has helped create homeowners
and has helped stabilize housing prices. C.A.R’s research on the use
of the tax credit in California showed that 39% of homebuyers said that
they would not have purchased a home without the tax credit.
Additionally, 52% of homebuyers making under $100,000/year said that they
would not have purchased a home without the tax credit. Furthermore,
of those first-time homebuyers who planned to apply for the tax credit, 40%
of respondents said it was the “most important” factor in their purchasing
of a home.
Senator Cardin (D-MD) has introduced S. 1678, which would extend the
current HTC until June 1, 2010, a 6-month extension. No other
provisions of the HTC would be amended as S. 1678 is currently
written. Some Senators advocating for a longer extension and/or an
expansion of the HTC have recently starting backing S. 1678, including
Senator Isakson (R-GA), who is one of the four cosponsors. S. 1678 is
currently in the Senate Finance Committee.
2. Mortgage Interest Deduction
The Congressional Budget Office (CBO) has prepared a report that suggests
ways for Congress to raise revenues. One key suggestion is that Congress
cut the mortgage interest deduction (MID) from the present $1.1 million cap
($1 million for a home and $100,000 for a home equity line of credit) to
$500,000, phasing in the reduction by $100,000 annually starting in 2013.
This would generate an additional $41 billion in revenue over 10-years.
Another option proposed by the CBO, which we have heard before, would
replace the MID with a flat tax credit that is 15% of mortgage interest
paid. This would increase revenue by about $390 billion over
Other proposals include eliminating the deduction for all state and local
taxes, including property taxes, which would increase revenues another $862
billion by 2019.
These types of ideas have been floated before and in the past have died
quickly because MID has been considered sacred; however, with the current
economic climate and the over-extension of housing being seen as one of the
causes of the financial turmoil, analyst believe that this might be a year
where a change in the mortgage interest deduction could be possible.
C.A.R. will monitor and continue to oppose, in align with our policies, any
B. Reporting Items:
1. Estate Tax
The Economic Growth and Tax Reconciliation Act of 2001 set in motion a
ten-year plan to increase the exemptions from the estate tax and lead to a
one-year full repeal in 2010. Effective in 2010, the estate tax will
be repealed, but only for 2010. In the interim, the amount of the exclusion
will gradually increase from $675,000 to $3 million and the estate tax
rates are gradually reduced from a maximum of 50% to a maximum of
45%. However, in 2011, the estate tax laws will revert to the laws
that were in effect on June 6, 2001.
As under prior law, the basis of assets received between 2001 and 2010 is
"stepped up" to its fair market value at the time of death. When repeal
comes into effect, the estate will not be taxed, but the basis of assets
that heirs receive will be "carried over" so that the basis in the hands of
the heir is the same as the basis of the previous owner.
Below is a chart showing the progression of the estate tax’s top rates and
exemption maximum through its full repeal in 2010 and its reversion back to
the old rates and exemption levels in 2011.
Top Estate Tax Rate
Originally it seemed as if Congress was going to address the issue of the
estate tax in 2010, before the tax rates and exemptions returned to their
old levels. However, with the current economic downturn Congress is
looking for an extension of the 2009 levels or a permanent compromise to
the estate tax.
Currently the Administration wants to make the 2009 levels permanent while
indexing the exemption for inflation. However, with the short
legislative calendar and other pressing issue, there may have to be a
1-year extension of the 2009 levels. Many advocates will continue to
push for a full repeal instead of a compromise and are hoping that the fact
that 64 of the House’s 256 Democrats have at some point voted for full
repeal will propel their cause. Nonetheless, the current economic
climate and need for more revenue, not less, may impede their endeavor.
2. Expiring Tax Breaks Congress is going to face a
slew of expiring tax breaks in 2010. These tax breaks include: the
expiring Bush income tax cuts, the capital gains rate possibly returning to
20%, the 1-year elimination of the estate tax – with 2011 returning to a
$1,000,000 exemption with a 55% tax rate, the expiration of tax extenders
–which includes the leasehold improvement, state and local taxes, and the
Brownfield deduction. In addition to these expiring tax breaks there
are going to have to be other tax breaks looked at in order to offset some
of the spending that has been incurred in 2009 in order to bring the
federal budget and deficit in line.
Congress is going to be hard pressed to deal with all of these looming tax
issues, especially with so many other issues still on their table and 2010
also being an election year. There is a chance that many of these tax
breaks will get temporary extensions because it would be politically
expedient as well as less cost prohibitive then permanent fixes.
Nonetheless, these tax breaks can also be used as political capital both
during an election, as a campaign issue, or as bait to try to pass other
VII. Real Estate Finance Issues
A. Action Item
1. FHA Anti-Flipping Rule
B. Discussion Items
1. Home Valuation Code of Conduct Since the HVCC went
into effect on May 1, 2009, consumers in California and across the country
have seen the cost of appraisals go up, the quality of appraisals be
questioned, and the real estate transaction encounter greater delays.
Legislation has been introduced, HR 3044, that would create an 18 month
moratorium on the HVCC to allow Congress and the GSE regulator to examine
the difficulties that the appraisal industry was experiencing during the
housing boom and what may be done to properly address them.
On September 22, 2009, HR 3044 had 91 cosponsors, including 16 from
California. It is unclear if HR 3044 will be attached to other
legislation as a means of moving it through Congress, or if this is the
stick necessary to force Cuomo and the GSEs to modify the HVCC.
Now that roughly two out of every three loans is required to comply with
the HVCC guidelines, the FHA has come under pressure to adopt rules that
will protect the appraisal process for FHA loans.
2. Regulatory Reform In June, the Administration
unveiled its regulatory reform proposal. It then began to release
proposed draft legislation for members of Congress to consider. The
first piece of proposed legislation was the creation of a Consumer
Financial Protection Agency (CFPA).
On July 8, Congressman Barney Frank, Chair of the House Financial Services
Committee introduced HR 3126, the Consumer Financial Protection Agency Act.
The intention of the legislation is to create a new agency responsible for
consumer protection, thus all but removing this responsibility from the
financial industry’s current regulators. The argument being put forth
for this proposal is that regulators who are charged with the safety and
soundness of a financial institution can not adequately protect
consumers. Proponents of the CFPA believe these goals run counter to
each other in many instances.
The House seems content with moving regulatory reform one piece at a time,
the CFPA being the first piece. The Senate is expected to move all
the pieces at once in a single large bill. However, due to Senator
Dodd’s role as a leader in the health care issue, it will be difficult for
Dodd’s Banking, Housing, and Urban Affairs Committee address this issue
before the end of the year. Dodd has just released details of his
regulatory reform proposal which includes the creation of one single
regulator for the entire financial industry and thus eliminating the
current alphabet soup of regulators.
3. FHA Update
a. FHA Appraisal
Under pressure to come closer in line with the GSEs and their Home
Valuation Code of Conduct, the FHA has adopted new appraisal requirements
to go into affect on January 1, 2010. While not completely identical
to the HVCC, the new requirements will implement many of the same
guidelines, these include:
• Prohibiting mortgage brokers or commission based lender staff from
choosing the appraiser,
• Allowing for the use of AMCs or other third party organizations for
appraisal ordering, and
• The prevention of improper influences on appraisers.
To address REALTORS®’ greatest concern with the HVCC, HUD reaffirmed in
their Mortgagee Letter that an appraiser should have knowledge of the
market area and have geographic competency for where the home is
located. However, there doesn’t appear to be anything in FHA’s
mortgagee letter that will prohibit lenders from merely extending their
current HVCC practices to FHA loans; except for allowing FHA appraisals to
b. FHA Reserve Fund
The FHA is expected to report their reserve fund has dropped below the two
percent level required by Congress. FHA Commissioner, David Stevens
has stated that while the reserve must get above that threshold again, the
FHA’s total reserve is more that $30 billion, or about 4.4 percent of its
book of business. Stevens noted that the study will project the
reserves should rebound above the two percent threshold within two
To address the reserve problem, FHA will hire a chief risk officer, and
will likely take additional steps in the future. The FHA does not
anticipate raising borrower premiums or minimum down payments for now.
c. H.R. 3146
On September 16, 2009, the House passed H.R. 3146, the 21st Century FHA
Housing Act. As FHA gains a larger share of the nation’s housing
market and plays an ever more important role in its recovery it became
important for Congress to take action to ensure FHA has the resources and
tools necessary to meet these goals. This includes the ability to
expand their staff and upgrade their technology, target reviews of loan
performance to better protect the financial health of the program, and
provide the HUD Secretary with authority to implement new programs to
minimize foreclosures, which may include short sales and deeds-in-lieu.
Lastly, the legislation will fix technical errors from the Housing and
Economic Recovery Act that passed in 2008. These errors include
streamlining condominium purchases and implementing the new dollar limit on
energy efficient mortgages.
4. GSE Reform
Many people expected the Administration to announce its plans to address
the future of Fannie Mae and Freddie Mac when they released their
regulatory reform proposal in late June. Instead, the Administration
has stated they will release their plans for the future of the GSEs around
the time they release their proposed 2011 budget in February of 2010.
It is still unclear how or if the Administration or Congress will
restructure the GSEs, and what role government is to play in the future of
the nation’s housing market.
The first detailed proposal for the future of the GSEs and the nation’s
mortgage capital markets has come from the Mortgage Bankers
Association. Their proposal would create new privately owned,
government-chartered and regulated, mortgage credit guarantor entities
(MCGEs). These would be very similar to Ginnie Mae and would
guarantee timely interest and principal payments to bondholders.
With Congress still focused on other priorities, it is doubtful this issue
will pick up much momentum prior to the Administration releasing their
proposal. However, we can expect other interested parties to continue
to put forth ideas and for hearings to be held in both chambers of
5. GSE and FHA Loan Limits
Included in the House passed Transportation, Housing and Urban Development
appropriations bill (THUD) was a provision that would extend the current
loan limits until the end of the fiscal year 2010 (October 1, 2010).
The Senate passed version does not include this provision. There is
still a great amount of support for it and both NAR and C.A.R. will work to
ensure it is included in the final version that comes out of conference.
6. Foreclosures and FICO Scores At the June Business
meetings, staff was asked to investigate the impact that a foreclosure,
short-sale, or deed-in-lieu has on a consumer’s credit report and FICO
score. A foreclosure will remain on a consumer’s credit report for
seven years. If the consumer stays current on other debt obligations
their FICO score can begin to rebound in as little as two years.
According to myFICO.com (FICO’s official website), “a foreclosure is a
single negative item, and if you keep this item isolated, it will be much
less damaging to your FICO score.”
A short sale and deed-in-lieu are considered the same as a foreclosure by
FICO, “not paid as agreed” accounts. These may be a better option
from a personal financial standpoint to the consumer, but their impact on a
consumer’s FICO score should not be any different than a foreclosure.
How a mortgage modification affects a borrower’s FICO score will be
determined by how the lender reports the information. If the lender
reports to the credit bureaus that the borrower has not made payments on a
mortgage as originally agreed, that information will likely result in a
decrease to their FICO score.
C. Reporting Items
1. RESPA After years of proposals and debates, the
new RESPA proposal will be effective on January 1, 2010. For
consumers this means a new good faith estimate (GFE) and new
HUD-1/HUD-1A. REALTORS® had originally opposed this proposal because
it complicated the transaction (including a closing script), contained
government price controls, and didn’t take into consideration the full cost
of implementation. HUD was able to address these concerns and NAR is
not opposing RESPA’s implementation.
2. TILA, Regulation Z
On October 1, 2009, the new Regulation Z rules adopted by the Federal
Reserve Board will take affect. The intent of the new regulation is
to protect consumers from predatory loans. The regulation addresses
the advertisement of loans, loan servicing, the appraisal process, and
defining higher-priced mortgage loans and what extra protections for
consumers these loans will carry.
A “higher-priced mortgage loan” is defined as a first-lien that is at least
1.5 percent or more above the average prime rate as calculated by the
Fed. For subordinate-liens the spread will be 3.5 percent or
more. Rules for higher-priced loans:
• Prohibits a lender from making a loan without regard to borrowers’
ability to repay the loan from income and assets other than the home’s
value. A lender complies, in part, by assessing repayment ability
based on the highest scheduled payment in the first seven-years of the
• Prohibits a lender from relying on income or assets that it does not
verify to determine repayment ability.
• Bans any prepayment penalty if the payment can change during the
initial four years. For other higher-priced loans, a prepayment
penalty period cannot last for more than two years.
• Requires that the lender establish an escrow (impound) account for
the payment of property taxes and homeowners’ insurance for first-lien
loans. The lender may offer the borrower the opportunity to cancel
the escrow account after one year.
Rule for all closed-end mortgages secured by a consumer’s principal
• Prohibits certain servicing practices: failing to credit a payment
to a consumer’s account as of the date the payment is received, failing to
provide a payoff statement within a reasonable period of time, and
pyramiding late fees.
• Prohibits a creditor or broker from coercing or encouraging an
appraiser to misrepresent the value of a home.
• Creditors must provide a GFE of the loan costs, including a schedule
of payments, within three-days after a consumer applies for any mortgage
loan secured by a consumer’s principal dwelling, such as a home improvement
loan or a loan to refinance an existing loan.
Rule for all mortgages:
• Requires advertising to contain additional information about rates,
monthly payments, and other loan features. The Rule also bans seven
deceptive or misleading advertising practices, including representing that
a rate or payment is “fixed” when it can change.
3. 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, the new Regulation Z rules, and the tighter underwriting standards
lenders are voluntarily now using, there is not an immediate need for the
legislation. It is unclear if Dodd intends to work on this
legislation prior to the end of the 111th Session of Congress.
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.
4. Foreclosure Rescue Scams The government continues
to look at ways to crack down of foreclosure rescue scams. At the
federal level there have been many ideas put forward in Congress and
multiple hearings held. To date there is no foreseeable movement by
any piece of legislation that would directly prohibit individuals or firms
from collecting fees for foreclosure avoidance assistance.
On the regulatory side, the Federal Trade Commission (FTC) has filed
multiple civil actions against companies charging upfront fees and
performing little to no assistance. The FTC is contemplating a full
ban on these companies that would prohibit them from advertising upfront
The government continues to advertise and encourage consumers to take
advantage of the free resources made available to them through the HopeNow
alliance and HUD approved counselors.
5. Making Home Affordable Program
In August, the U.S. Treasury Department released their first statement on
how the President’s Making Home Affordable Program is performing. At
that time, the Treasury reported that more than 230,000 trial modifications
had begun. They believed this would put them on pace to assist 3 to 4
million homeowners over the next three years. The Administration has
set a goal of having 500,000 trial modifications started by November 1,
2009. One of the problems that plagued earlier attempts at loan
modifications was a high re-default rate. It is still too early to
know what the re-default rate will be with this program; however, it is
hoped that by focusing on permanently reducing the debt-to-income ration of
the homeowner this program will have a much higher success rate.
More than 85 percent of the mortgage market is covered by participating
servicers. Some in Congress have stated that if lenders are not
working hard enough to modify loans, they will bring bankruptcy cramdowns
back to the floor for another vote.
6. National Flood Insurance Program
The House has passed legislation that would extend the NFIP until the end
of March 2010. The legislation is now waiting for the Senate to take
action, which it will have to do prior to September 30, lest the government
program run out of funds.
Still feeling the financial effect of Katrina and Rita, the NFIP is still
financially insolvent. Congress has attempted multiple times to
reform the NFIP but has been unsuccessful at passing a comprehensive reform
package that would make the program financially viable again.
Congress has consistently passed short term extender packages since the
hurricanes to ensure the continued availability of the insurance, which is
mandatory for federal mortgages on properties in flood planes.
7. Lockhart Steps Down
James Lockhart, Director of the Federal Housing Finance Agency, stepped
down from his position in August. Originally appointed under the Bush
administration, many had hoped that he would remain as director until the
end of the year so the current administration would not have to focus on
replacing the head of Fannie’s and Freddie’s regulator. It is not yet
known who will replace Lockhart.
VIII. Land Use & Environment Issues
A. Reporting Items:
1. Climate Change, Energy Efficiency, and Point-of-Sale
C.A.R. Policy: C.A.R. opposes the inclusion of any Point-of-Sale
On March 31, 2009 Representative Waxman (D-CA) introduced a proposal for
energy and climate change legislation, which became H.R. 2454. H.R.
2454 passed the House on June 26, 2009 by a vote of 219-212.
Part of the original proposal included a Point-of-Sale (POS) program that
would require an energy label on real property. C.A.R. and NAR
opposed this legislation since it included POS which adds unnecessary costs
to transactions and has been show to be an ineffective tool for
implementing changes in energy efficiency. However, REALTOR®
opposition was removed when Rep. Waxman agreed, as part of a manager’s
amendment, to greatly amend the POS labeling language so it would only
apply to new construction, and NOT to existing homes. Additionally, the
bill does not include any retrofit mandates at POS.
What the bill does do is provide financial incentives, such as grants,
loans, loan guarantees, and/or mortgage interest rate buy-downs, for
property owners who voluntarily make energy efficiency improvements.
As these voluntary improvements would be incentivized by federal tax
dollars, the energy efficiency of the property would require an audit
before and after the improvement.
The legislation will create a national building code standard that states
will have to adopt or the federal government will set and enforce the
state’s building codes. Although California’s code already would be
in compliance with the provisions of the legislation, C.A.R. has
historically opposed federal preemption of state laws. Both C.A.R.
and NAR will continue to work with the Senate to amend this section of the
bill. Currently, the Senate is delaying their hearings on energy
legislation as they attempt to finish healthcare legislation first.