2007 Conventional Finance and Lending Committee National Association of REALTORS® Midyear Legislative Meetings & TradeExpo Marriott Wardman Park Wilson Room A&B, Mezzanine Level Wednesday, May 16, 2007 & Sunday, April 1, 2007 10:00 AM- 12:00 PMChair:Judy Zeigler (CA) Vice Chair:Beth Peerce (CA) Committee Liaison:Gary Thomas (CA) Committee Executive:Jeff Lischer (DC) & Lynn King (DC)
I. Call To OrderII. Opening Remarks
III.NAR Conflict of Interest Statement
Ownership Disclosure Policy
1. When NAR has an ownership interest in an entity and a member has anownership interest* in that same entity, such member must disclose the existence of his or her ownership interest prior to speaking to a decision making body on any matter involving that entity.
2. If a member has personal knowledge that NAR is considering doing business with an entity in which a member has any financial interest**, or with an entity in which the member serves in a decision-making capacity*, or wit, then such member must disclose the existence of his or her financial interestor decision making role prior to speaking to a decision making body about the entity.
3. If a member has a financial interest in, or serves in a decision-making capacity for, any entity that the member knows is offering competing products and services as those offered by NAR, then such member must disclose the existence of his or her financial interest or decision-making role prior to speaking to a decision making body about an issue involving those competing products and services.
After making the necessary disclosure, a member may participate in the discussion and vote on the matter unless that member has a conflict of interest as defined below.
Conflict of Interest Policy
A member of any of NAR’s decision making bodies will be considered to have a conflict of interest whenever that member:
1. Is a principal, partner or corporate officer of a business providing products or services to NAR or in a business being considered as a provider of products or services (“Business:); or
2. Holds a seat on the board of directors of the Business unless the person’s only relationship to the Business is service on such board of directors as NAR’s representative; or
3.Holds an ownership interest of more than 1 percent of the Business.
Members with a conflict of interest must immediately disclose their interest at the outset of any discussions by a decision making body pertaining to the Business or any of itsproducts or services. Such members may not participate in the discussion relating to that Business other than to respond to questions asked of them by other members of the body. Furthermore, no member with a conflict of interest may vote on any matter inwhich the member has a conflict of interest, including votes to block or alter the actions of the body in order to benefit the Business in which they have an interest.
________________________________________ *Ownership interest is defined as the cumulative holdings of the member, the member’s spouse, children, siblings and to any trust, corporation or partnership in which any of the foregoing individuals is an officer or director, or owns, in the aggregate, at least 50% of the (a)beneficial interest (if a trust), (b) stock (if a corporation) or (c) partnership interests (if a partnership).
**Financial interest means any interest involving money, investments, credit or contractual rights.
IV.Approval of Previous Meeting's MinutesV.Review of Committee Goals Committee: Conventional Finance and Lending CommitteePurpose:To develop Association policy on conventional mortgage finance and lending; to establish and maintain liaison with secondary market agencies, private mortgage insurers, trade associations, and other entities involved in regulating, providing, and maintaining conventional mortgage financing and lending. The committee is also the lead committee for issues regarding the banking and financial services industry and their intersection with real estate finance.Chair:Judy Weiss Zeigler (CA) Vice Chair:Beth Peerce (CA) Liaison:Gary Thomas (CA) Staff Contacts:Jeff Lischer, 202-383-1117; Lynn King, 202-383-1156
Goal No. 1: Position the Association in Congress, with the federal regulatory agencies, and the administration to continue opposing banks brokering, leasing, or managing real estate.
Background: The Federal Reserve Board/Treasury Department published a proposed regulation that would permit financial holding companies and financial subsidiaries of banks to broker, lease, or manage real estate. NAR’s coordinated effort involvessupporting legislation to block issuance of a final regulation, monitor and respond to the activities of federal regulators, and public relations efforts that involve REALTORS®, industry allies, and consumers.
Actions to be taken by Committee to Achieve Goal: Continue NAR opposition to the Federal Reserve Board/Treasury Department proposed real estate rule. Refine and implement current NAR policy, as needed, in all relevant arenas to keep banks out of real estate (including real estate development pursuant to OCC rulings).
Enhance coalition activities on all committee issues, building on the foundation created with consumer, business, state and local government, and advocacy groups in the opposition to banks entering real estateand in support of all committee goals.
Expected outcome: Passage of federal legislation to block the proposed real estate regulation and a continuation of the effort to enact permanent ban on banks in real estate.
Goal No. 2: Position the Association to address to questions regarding competition in the real estate industry.
Background: Over the last two years, some policymakers, analysts, and media observers have alleged that the real estate industry lacks vigorous pricecompetition and that there are significant barriers to additional competition from non-traditional real estate firms. NAR and the real estate industry have been the targets of a Department of Justice (DOJ) lawsuit, a Government Accountability Office (GAO)report, a joint DOJ/Federal Trade Commission (FTC) workshop, a House Financial Services Subcommittee hearing and a number of academic articles and reports charging the industry as anti-competitive and anti-consumer choice. NAR has vigorously defended thevalue that REALTORS® bring to the transaction, the MLS system, competition (including on price and service), consumer choice of real estate services, and state regulation of real estate.
Actions to be taken by Committee to Achieve Goal: The committee will be kept apprised of Congressional, regulatory, and private sector actions that challenge the competitive nature of our industry or undermine the substantial consumer benefits offered by the current real estate system. The committee willadvise staff on the evolving nature of competition in the industry.
Expected outcome: A more aggressive, proactive campaign that will educate policymakers, analysts, and media observers who are critical of the real estate industry. This will include: initiating new research reports and data by NAR and credible third parties to examine competition within real estate markets; engaging experts and advocates to voice pro-competitive and pro-consumer choice messages; and providing our state and local associations and REALTORS® with messages to defend the organized real estate system as both pro-business and pro-consumer.
Goal No. 3: Fannie Mae, Freddie Mac and Federal Home Loan Banks (GSEs) Regulatory Reform
Background: The 110th (2007-2009) Congress may consider legislation to create a new regulator for the housing GSEs. In the 109th Congress, the full House and the Senate Banking Committee have reported GSE reform measures but the chance of enactment in the 109th Congress is remote. The House bill contains a provision that will require the new regulator to establish regional conforming loan limits to address the shortage of conventional financing in high cost areas and it creates an affordable housing fund using five percent of GSE profits. The Senate bill takes a more draconian approach to reform and limits the GSEs loan portfolios. It also contains no affordable housing or conforming loan limits language. The Bush Administration is also tightening the regulatory constraints on the GSEs’ housing programs and operations under current law.
Actions to be taken by Committee to Achieve Goal: The committee will be kept apprised of congressional and regulatory actions that will affect the housing finance system.
Expected Outcome: Enactment of GSE reform legislation that ensures the financial stability of the housing GSEs while continuing their housing mission.
Goal No. 4: Position the Association to address predatory lending legislation and regulations.
Background: Predatory lending issues have gained public and government notice over the past several years. NAR has a three-pronged approach to combat abusive lending practices that includes public awareness, consumer education and support for strong legislation and regulations addressing predatory lending.
Actions to be taken by Committee to Achieve Goal: The Committee will continue to offer guidance to staff in implementing the educational and awareness prongs of thepolicy. The Committee and Subprime Lending Work Group will monitor the actions of public policy makers and be asked to review or assist with comments on proposed legislation and regulations.
Expected outcome: Continuing enhancement of resources available on Realtor.org for REALTORS® to utilize in their efforts to educate consumers on potential problem loans. NAR consumer awareness campaign already using “Ask your REALTOR® first.” Issue consumer education brochures on howto shop for mortgages and avoid predatory mortgages. Any predatory lending legislation will contain provisions that NAR favors.
B. Overview of Regulatory and Congressional Activities1. Banking Regulators’ Subprime Mortgage Lending Guidance. On March 2, the federal financial regulatory agencies issued for comment a proposed Statement on Subprime Mortgage Lending to addresses risks and emerging issues relating to subprime mortgage lending. Thestatement is primarily focused on two concerns, the first being the ability for borrowers to repay their loans without having to refinance or sell the property. The second deals with the borrowers comprehension of their loan terms; does the borrower understand the information proved, benefits and risks of the loan, and has the borrower been presented with other loan options.2. Congressional Oversight of Subprime Lending Problems and Forthcoming Legislation.While subprime legislation will originate from the House Financial Services Committee or the Senate Banking, Housing and Urban Affairs Committee, a number of Congressional Committees and Subcommittees have held hearing pertaining to subprime lending, predatory lending and the rise in foreclosures. A number of legislative ideas have been discussed, including federal preemption of state subprime and predatory lending laws, bail out of home owners, refinance assistance for homeowners, and other ideas.It is still too early to know what final legislation will look like and while both the Senate and the House are likely to pass bills, it is unclear whether they will be able to agree on a final bill to send to the Presidents desk.VII. Guest Speaker: Mike Calhoun
A. Michael D. Calhoun, President of the Center for Responsible Lending
A. Banks in Real Estate. In early 2001 the Federal Reserve Board 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. NAR strongly opposes the proposal, arguing that the Bank Holding Company Act of 1956 and the Gramm-Leach-Bliley Act (GLB Act) of 1999 do not authorize banking firms to provide real estate brokerage and property management services, as these are nonfinancial, inherently commercial activities.
If banks are allowed to engage in real estate brokerage, it would create anti-competitive and anti-consumer concentrations of power within the financial services sector, which would ultimately increase costs for homebuyers. Financial holding companies and bank subsidiaries with direct and indirect federal subsidies will compete unfairly with real estate firms and their affiliates because they have access to cheap sources of capital (thanks to federal deposit insurance and loans from the Federal Home Loan Bank System) and will cross-subsidize their commercialoperations. Permitting banks to engage in commerce will compromise bank lending decisions and create conflicts of interest while restricting consumer choice and competition among mortgage lenders.
C.A.R. and NAR strongly support enactment of the Community Choice in Real Estate Act, H.R.111/S.413, which removes the powers of the Fed and the Treasury Department to regulate these real estate activities. REALTORS® believes that, if permitted to engage in real estate brokerage and management, national bank conglomerates would have an unfair competitive advantage and inherent conflicts of interest would result.
On February 15, 2007, President Bush signed H.J. Res. 20, the Revised Continuing Appropriations Resolution, 2007, which continues the one-year ban on the Fed and the Treasury Department from finalizing the rule allowing banks to engage in real estate brokerage.
On January 4, 2007, Representatives Paul Kanjorski (D-PA) and Ken Calvert (R-CA) reintroduced H.R. 111, "The Community Choice in Real Estate Act," which clarifies Congressional intent that real estate brokerage and management are not banking activities. Currently, 216 House members have signed on as cosponsors of H.R. 111. On January 26, 2007, Senators HillaryRodham Clinton (D-NY) and Wayne Allard (R-CO) introduced a Senate version of "The Community Choice in Real Estate Act," which has 19 cosponsors.
B.GSE Reform. The new Democratic-controlled Congress raises the prospect that GSE reform legislation may be adopted in 2007. Legislation introduced by House Financial Services Committee Chairman Barney Frank (D-MA) overhauls the regulatory oversight of the housing government-sponsored enterprises (GSEs) -- Fannie Mae, Freddie Mac, and the Federal Home Loan Banks system (FHLBanks). The introduced bill is a product of both bipartisan legislation considered in the 109th Congress and compromise agreements between House Democrats and the Department of theTreasury. The new legislation creates a strong, independent safety and soundness regulator with broad powers analogous to current banking regulators.
Housing and real estate account for nearly 20 percent of the national economy. The GSEs buttress the nation's housing finance system by assuring stability and liquidity in all housing markets allowing investors to fund mortgages regardless of the interest rate environment, or other factors affecting the economy. The GSEs represent a significant -- now more than $1.4 trillion -- federal subsidy that supports housing and homeownership.
C.A.R. and NAR support strengthening GSE financial safety and soundness regulation through an independent agency that recognizes and facilitates their unique corporate structures and public missions that assure stability and liquidity that in the nation’s housing finance system. NAR also supports the affordable housing and community development programs of the FHLBanks that provide alternative financing for Bank member credit unions, banks and thrifts. REALTORS® also support allowing regional adjustments to the maximum loan amounts (“conforming loan limits”) that the GSEs can purchase in high cost housing markets.
On March29, 2007, the House Financial Services Committee passed H.R. 1427 – GSE Reform Bill. Over the course of the two day mark-up, there were a number of amendments, the most significant for REALTORS® was an attempt by Representative Jeb Hensarling(R-TX) to eliminate the conforming loan limit provision in H.R. 1427, arguing that it would allow the GSEs to enter the luxury home finance market. REALTORS® worked closely with Representative Gary Miller to defeat the Hensarling amendment by a voteof 10 (in support) and 51 (opposed to the amendment). Consideration of H.R. 1427 by the full House is expected during the week of May 7, 2007.
C. Industrial Loan Companies (ILCs). In 2006, inresponse to applications from Wal-Mart and Home Depot to become owners of industrial loan companies (ILCs), NAR, bank trade associations, and many others voiced concerns with the Federal Deposit Insurance Corporation (FDIC) and Congress about mixing of 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. An ILC is a special type offederally insured state-chartered bank (Utah has chartered about half of all ILCs).
Banks should not be swayed into making credit or other business decisions based on their affiliation with commercial firms. When commercial firms are allowed to engage in banking, the bank functions under an inherent and irreconcilable conflict of interest. The bank’s commercial parent will be tempted to use the bank in a manner that furthers its own corporate objectives, which may be at odds with what isin the best interests of the bank subsidiary, customers, competitors, REALTORS®, and our financial system.
C.A.R. and NAR support amending the Federal Deposit Insurance Act to tighten or eliminate the exception that permits commercial firms to own ILCs. REALTORS® opposes FDIC approval of any commercial company's application to acquire an existing ILC or to obtain federal deposit insurance for new a ILC. REALTORS® believes that Congress should close ILC loophole and maintain ournational policy against mixing banking and commerce.
C.A.R. and NAR support enactment of H.R. 698, the "Industrial Bank Holding Company Act of 2007." The FDIC moratorium on pending applications from commercial firms to acquire or charter ILCs has been extended until January 31, 2008. Despite Wal-Mart's March 2007 announcement to withdrew its application to charter an ILC, Chairman Frank and Representative Gillmor remain committed to passing H.R. 698 and indicated a willingness to negotiate someprovisions to address concerns raised by some Senators. The House Financial Services Committee passed H.R. 698 out of Committee on Wednesday, May 2, 2007.
