Agenda Summary
National Association of REALTORS®
2009 Midyear Legislative Meetings
Marriott Wardman Park
Wilson A&B
Wednesday, May 13, 2009
10:00 AM - 12:00 PM

Chair: George Wonica, NY
Vice Chair: Iona Harrison, MD
Committee Liaison: Lance Lacy, TX
Committee Executive: Tony Hutchinson, Washington DC, Jeff Lischer, Washington DC

I. Call To Order

II. Opening Remarks

III. NAR Conflict of Interest Statement (Click Here)

IV. Approval of Previous Meeting's Minutes (Click Here)

V. Review and Approval of Committee Goals (Click Here)

VI. New Business

A. Credit Scoring: Tom Quinn, FICO Vice President, Global Scoring Solutions
("Understanding Your FICO® Score")

B. Home Price Insurance
Unlike previous housing cycles during which home sales often fell sharply, the current cycle has been characterized by both declining sales and declining prices. The decline in prices has caused many home buyers to reevaluate the timing of a home purchase because they lack confidence in the near-term outlook for home prices; rather than purchase a home today, a large share of potential home buyers are sitting on the sidelines waiting until they believe prices have stabilized. However, the longer buyers wait, the greater the likelihood that home prices will continue to fall as sellers chase too few home buyers and consequently further reduce the price of their home in order to complete a sale. Furthermore, as prices continue to weaken, more distressed properties will come on the market putting even more downward pressure on prices.

One possible approach to bolstering consumer confidence is a program that would partially compensate home buyers for any loss that they might incur when selling their home in the future. Although there are several ways a home price insurance program could be structured, the basic attributes would include the following:

• Home price insurance would only be available to home buyers who purchased a home during a certain period of time in the future – the next 12 months, for example. The goal is not to provide insurance for all future home buyers, but to provide an incentive for home buyers to purchase a home today rather than waiting.
• To receive compensation for any loss in home value, buyers would have to hold the property for a minimum period such as 3 years.
• Buyers, who hold a property for the required minimum period and sell their home for less than the purchase price, would receive compensation up to a predefined maximum amount, such as 10% of the purchase price.
• The program could be funded solely by the Federal government or funded in part by home buyers as well as home sellers who would benefit from a quicker home sale as a greater number of buyers enter the market.
• Participation in the program for home buyers and sellers would be voluntary.

The potential cost depends on how the program would be structured. If the program is effective in drawing qualified buyers to the market who are currently on the sidelines, home prices may stabilize and begin to appreciate even before a majority of buyers participating in the program sell their home. For most of these home buyers there would be no compensation under the program since home prices would be higher by the time they sold their home. Under a scenario characterized by a return to long-term price appreciation trends and a typical holding period for home buyers of 6 to 7 years, the cost of the program would be in the range of $20 billion to $25 billion. In a worst-case scenario, which assumes a very high level of home buyer and seller participation, significant additional home price declines (an additional 10 percent decline nationwide, for example), and a very large share of buyers selling at a loss, cost estimates range from $100 billion to $150 billion.

The outlines of a home price insurance program were presented to the PAAG for their consideration. The PAAG decided against pursuing the initiative based on two major concerns. First, the Federal Government has committed billions of dollars to various efforts aimed at fighting the recession, including initiatives targeting the housing market. Adding an uncertain level of costs with a home price insurance program was not viewed as prudent. Second, the effectiveness of programs and policies currently in place, such as the $8,000 first-time home buyer tax credit (and the benefits of expanding the tax credit to include all home buyers as NAR is advocating), need to be fully evaluated before further actions are recommended.

Issue
Should NAR seek adoption of a federal Home Price Insurance Program?

Pros:
--The proposal, if enacted may restore some sense of security to buyers who fear price declines.

--The proposal, if successful in restoring a sense of security and bringing buyers back to the marketplace may cost less than predicted.

Cons:
--Congress is against embarking on new costly programs before giving current programs time to work.

--Pursuing such a program is likely to keep people sitting on the fence further and it may create fear that further significant price declines are expected.

--Fear of price declines may no longer be the biggest problem. Lack of access to credit, fear of losing one's job, fear of worse economic instability may all be weighing heavier on fence sitters.

--Even in a tightly structured program, buyers may find ways to “game” the system to receive benefits under the program to which they are not entitled.

--Although worst-case scenario estimates can be developed, the cost of the program – to the Federal Government or to home buyers and sellers – is uncertain.

C. Credit Unions in Real Estate
Congress recently strengthened the national policy against mixing banking and commerce by permanently baring banking conglomerates from engaging in real estate brokerage and management activities. But several exceptions to the national policy remain, including the authority that allows credit unions to own credit union service organizations (CUSOs) that engage in real estate brokerage activities. A CUSO must be at least 51% owned by one or more credit unions and must primarily (51%) serve credit union members. It may invest no more than 1% of its assets in CUSOs. [NOTE: A CUSO is defined in the credit union statute as “…any organization as determined by the [National Credit Union Administration], which is established primarily to serve the needs of its member credit unions, and whose business relates to the daily operations of the credit unions they serve.” Activities of CUSOs are not limited to financial activities.]
The issue is whether NAR should seek repeal of the existing statutory exception.

NAR has heard from members residing in the jurisdiction of the Mid-Florida Credit Union and the Pentagon Federal Credit Union. These Realtors® are concerned these credit union real estate activities for the same reasons as NAR objected to national banks engaging in real estate activities. On the other hand, Realtors® in firms acquired by the two credit unions presumably are not dissatisfied with the situation.

NAR does not have policy to seek repeal of the authority that credit unions, through CUSOs, may engage in real estate activities or any of the other statutory authorities, with one exception. Several years ago NAR unsuccessfully sought repeal of the authority for commercial firms to acquire Industrial Loan Companies (ILCs), which are a specialized type of state chartered, FDIC-insured institution permitted by a few states.

One of NAR’s key arguments for opposing the Fed-Treasury “banks in real estate” rule—now permanently barred by Congress—was that the rule went beyond the agencies’ statutory authority by authorizing national bank conglomerates to engage in the fundamentally commercial activities of real estate brokerage and management activities. One of the main reasons NAR has not opposed the CUSO and other exceptions is that, unlike the Fed-Treasury banks in real estate rule, they are consistent with the underlying statutes. Other factors include that the exceptions are relatively minor, are limited in scope, and as a general matter involve relatively small institutions.

Should NAR Seek Repeal of the Existing Credit Union CUSO Authority to Engage in Real Estate?

Pros:
--Credit Unions, like banks, have federally insured deposits. This and other favorable access to capital gives them an unfair advantage to compete with other real estate firms and create the same conflict of interest in their lending operations.
--Realtors® in two areas who compete with real estate brokerages owned by credit unions object to these operations on the same grounds as NAR objected to banks engaging in real estate. They seek NAR action.

Cons:
--Few credit unions engage in real estate activities, but blocking the potential activities of the credit union industry would require a major commitment of NAR resources to overcome opposition from credit unions.
--While NAR handles many issues simultaneously, adding this one could detract from its work on the economic stimulus/credit crunch, tax policy (protecting the mortgage interest deduction, the current capital gains rate, etc.), environmental/global warming policies, keeping FHA strong and effective, and Fannie/Freddie restructuring.
--Credit unions serve 85 million members and are a powerful force in Washington. They have won virtually every fight with the banking industry and would be a formidable opponent if NAR sought to restrict credit union powers.
--Realtors® would lose the opportunity to affiliate with credit unions.
--NAR has recently spearheaded an effort to form a credit union to serve Realtors® and their families. Seeking to remove authority from the credit union charter, especially from a new addition to the industry, would be extremely controversial.

VII. Unfinished Business/Updates

A. Fannie Mae/Freddie Mac Restructuring
On September 7, 2008, the Federal Housing Finance Agency (FHFA) placed Fannie Mae and Freddie Mac (the government sponsored enterprises, or GSEs) into conservatorship. FHFA explained it took this action “to help restore confidence in Fannie Mae and Freddie Mac, enhance their capacity to fulfill their [housing] mission, and mitigate the systemic risk that has contributed directly to the instability in the current market.” Now under debate is the future structure of Fannie Mae and Freddie Mac.

Fannie Mae and Freddie Mac play a key role in the secondary mortgage market, which is crucial in providing capital for mortgage lending. During the credit crunch, the private sector withdrew from having a significant, competing role with the GSEs. Without the GSEs and FHA-insured loans, there would be almost no capital available for mortgage lending, which would bring home sales to a halt for practical purposes.

At the November 2008 meetings in Orlando, the Board of Directors approved the GSE Presidential Advisory Group (PAG) "Principles for Ensuring a Robust Financing Environment for Homeownership." The goal of these principles is to ensure there is sufficient capital to support mortgage lending in all types of markets for qualified borrowers. NAR believes that these principles require a continuing role for the federal government in the mortgage market. The new secondary mortgage market model must:

 1. Ensure an active secondary mortgage market by facilitating the flow of capital into the mortgage market, in all market conditions.

2. Seek to ensure affordable mortgage rates for qualified borrowers.

3. Establish reasonable affordable housing goals so all qualified borrowers, including low- and moderate-income households, have an opportunity to realize the dream of homeownership. Affordable housing goals should not provide incentives for the institution that are inconsistent with sustainable homeownership.

4. Require the institution to pass on the advantage of its lower borrowing costs (and other costs of raising capital) by making mortgages with lower rates and fees available to qualified borrowers.

5. Ensure mortgage availability throughout the nation. NAR supports indexing conforming loan limits based on increases in median sales prices, including higher indexed limits for areas with high housing costs.

6. Require sound underwriting standards.

7. Require the highest standards of transparency and soundness with respect to disclosure and structuring of mortgage related securities.

8. Ensure there is sufficient capital to support mortgage lending in all types of markets.

9. Provide for rigorous oversight.

Legislation resolving how to restructure the GSEs has not yet been introduced. The debate has already started, but legislation may not be enacted until 2010, or even later.

B. Mortgage Reform Legislation, H.R. 1728
Abusive lending practices are a serious problem for our nation's communities. While abusive lending is mostly found in subprime loans, not all subprime loans are abusive. Responsible subprime lenders play an important role in helping millions of consumers achieve homeownership. Unfortunately, some lenders have take advantage of vulnerable borrowers by charging extremely high interest rates and loan fees, use aggressive sales tactics to steer consumers into unnecessarily expensive loan products, and advertise very low "teaser rates" that steeply increase after two or three years. Abusive loans lead to higher foreclosures, increased vacancy rates, lower home values, and community deterioration.

REALTORS® have a strong stake in preventing abusive lending because:

--Abusive lending erodes confidence in the Nation's housing system.
--Congress and the regulators could over-react and inadvertently limit the availability of reasonable credit for prime and subprime borrowers.
--If abusive lending constrains the secondary mortgage market, the cost of mortgages for all homebuyers will go up.
--Abusive lending harms citizens and communities, including REALTORS®.

As abuses in the housing market were becoming evident, NAR adopted a set of “Responsible Lending Principles” in May 2005. NAR is a strong advocate of protections for consumers in the mortgage transaction; therefore, REALTORS® support the general principle that all mortgage originators should act in good faith and with fair dealings in a transaction, and treat all parties honestly.

NAR supports federal legislation and regulation that prevent abusive lending while keeping fair and affordable subprime loans available. Consumer education is an important tool for combating abusive lending, and NAR encourages its members to help consumers learn how to avoid abusive lending and has developed educational materials as part of this effort. NAR policy supports adoption of responsible lending principles to assure lenders make loans to borrowers that are fair and affordable. Subprime loans should have a reasonable debt-to-income ratio and an escrow for taxes and insurance. Borrowers should have a reasonable choice of mortgages priced to reflect the borrower's creditworthiness. NAR also urges various actions to prevent foreclosure and minimize its impact and other policy initiatives.

On April 29, 2009, H.R. 1728, the “Mortgage Reform and Anti-Predatory Lending Act” was approved by the House Financial Services Committee (HFSC). HFSC Chairman, Barney Frank (MA), expects the legislation to be voted on by the full house during the week of May 3rd, 2009. It is expected that H.R. 1728 will pass the House and be sent to the Senate Banking, Housing and Urban Affairs (SBHUA) committee for consideration. As of April 29th, there is no companion legislation in the Senate; however, SBHUA Committee Chairman, Chris Dodd, has indicated that he supports mortgage reform. At this time, there is no indication of when this issue will be taken up by the SBHUA or the full Senate

C. Mark-to-Market Issue
Lawmakers and industry representatives (financial institutions, investors, auditors, etc.) have increasingly been calling for clarification of the fair value accounting guidelines and the "mark-to-market" accounting application of these guidelines. Marking the value of securities to market when the markets are dysfunctional has severely impaired liquidity in the commercial and residential mortgage markets, without accurately reflecting the value of the securities.

Additional application guidance was needed to assist investors struggling to value assets in today's market conditions. The Federal Accounting Standards Board (FASB) met on Tuesday, March 17th, 2009, and approved the issuance of two proposed staff positions (FSPs) for public comment:

1. Proposed FSP FAS 157-e, Determining Whether a Market Is Not Active and a Transaction Is Not Distressed.

2. Proposed FSP FAS 115-a, FAS 124-a, and EITF 99-20-b, Recognition and Presentation of Other-Than-Temporary Impairments.

On April 2, 2009, FASB approved these FSPs.

The problems with mark-to-market accounting is due to the interpretation and application of FAS 157, the current mark-to-market accounting rule. The mark-to-market rule had prompted a groundswell of complaints from commercial real estate investors and lenders who say that the accounting policy has resulted in the devaluation of performing assets and forced companies to value the assets at fire-sale prices. The market for residential mortgage backed securities, other than those backed by the GSEs, is virtually dead. The inability of businesses, investors, and government to properly value assets in disorderly markets has created uncertainty and a loss of confidence that has led to a self-reinforcing cycle of write-down and further economic contractions, reducing the availability of capital for real estate lending.

On December 16, 2008, NAR commercial leaders met in Washington to develop a commercial economic stimulus plan to guide NAR's efforts on behalf of commercial real estate. The policy calls for making mark-to-market accounting rules more flexible and encouraging the use of other valuation tools such as discounted cash flow analysis to assist with valuing assets in illiquid markets. On March 31, 2009, NAR President Charles McMillan wrote to the FASB in support of its draft guidelines to provide clarity and guidance to address problems with mark-to-market accounting.

On April 2, 2009, FASB voted to approve the recently released FSPs, thereby providing additional guidance and clarity to assist in the valuation of assets in illiquid markets. NAR will monitor the situation and seek further policy change or guidance, if necessary.

D. Other Updates:

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 opposed the proposed rule, 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. Congress has now permanently blocked the Fed and Treasury Department from expanding bank authority, as proposed in 2001.

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.

Bankruptcy
The most effective remedy available to homeowners facing foreclosure to stay the foreclosure is to file for bankruptcy under Chapter 13 of the Bankruptcy Code. Today, due to the financial strain placed on families because the current economic crisis, an increasing number of borrowers, even those filing for bankruptcy under Chapter 13, are losing their homes to foreclosure because they can’t keep up with the financial demands of problematic mortgages. Bankruptcy judges do not have the authority to modify mortgages for principal residences (unlike mortgages for second homes, vacation homes, farms, etc.).

In order to assist those saddled with abusive loans and minimize the turmoil created for families, neighborhoods, communities and housing markets by the economic crisis, bankruptcy reform advocates propose giving bankruptcy judges the authority to modify mortgages for principal residences. The concept is to allow these mortgages to be bifurcated into a secured and unsecured loan and mortgage interest rates and terms to be modified by bankruptcy judges. The secured mortgage would be written down to the current value of the property.

NAR currently has no policy applicable to the current mortgage market or the reform measures being debated.

NAR’s policy from the early 1990’s that opposes “cram-downs” was adopted when loans were predominantly fixed rate mortgages; 2/28s (teaser rate mortgages) and option ARMs were not a significant part of the market until early 2004. The housing market and types of mortgages products have evolved dramatically since the last time this issue was considered by REALTORS®.

On March 5, 2009, the House passed bankruptcy reform as part of H.R. 1106, the “Helping Families Save their Homes Act of 2009,” 234-199, and referred the bill to the Senate. As of mid-April, the Senate Banking, Housing and Urban Affairs Committee has not acted on the bill. Senator Durbin is leading the Senate bankruptcy reform effort.

The Obama Administration strongly backs bankruptcy reform as part of its Making Home Affordable Program. With organizations like Citigroup indicating that they are also onboard, there is a serious possibility of enactment in 2009.

Short Sales
REALTORS® have sounded the alarm about the short sales process. This is what they are reporting to the National Association of REALTORS® (NAR).
--The process takes too long causing buyers to withdraw offers.
--Lack of uniformity among servicers/lenders’ information demands and processes.
--Non-responsiveness on the part of the servicer/lender even as to the status of the offer.
--Insufficient or inexperienced servicer/lender staff.
--Lost documents requiring multiples resubmissions.
--Unrealistic view of current home values, delaying approval, often until the potential buyer walks away from the offer.
--Lenders end up losing much more money if they foreclose.

In response, NAR established the Short Sales Issues Work Group that met in February 2008 and submitted its report to NAR’s Board of Directors for approval in May 2008. The Work Group asked NAR staff to work with lenders and servicers to develop solutions. The Work Group’s recommendations included:

1. A commitment by all lenders and their servicers to make it easy for sellers and agents to immediately locate online the correct department and the individual who will be responsible for processing the short sale applications.

2. A single industry-wide short sale application and list of supporting documents that all lenders and servicers would agree to accept. The Uniform Loan Application is an industry standard. It should not be hard to agree on a Uniform Short Sale Application.

3. A commitment by all lenders and their servicers to keep the listing agent and seller regularly informed of the status of the short sale application throughout the process and respond to reasonable requests for information.

4. A commitment by all lenders and their servicers to deliver a clear answer, in writing, yes or no, within a reasonable time frame. For example, 30 days from receipt of the complete application is a reasonable goal.

The Chairman of the Conventional Finance and Lending Committee, accompanied by NAR staff, met in February 2009 with 10 servicers attending the MBA Servicer Conference in Tampa. The participants discussed the problems REALTORS® face when getting a short sale to closing: delays, confusion, lost documents, non-responsiveness, etc. Servicers are open to using uniform forms, along the lines of those drafted by CAR. Another idea coming from the meeting is to improve the first letter to a borrower after the borrower contacts the servicer to ask about a loan modification or short sale. The type of loan affects how complicated the negotiations will be, and how long they will take, so that information will be extremely helpful to both REALTORS® and buyers.

NAR met with the Mortgage Bankers Association, the HOPE NOW Alliance, Fannie Mae, and Freddie Mac to discuss how to improve the process. NAR will clarify the Short Sales Work Flow developed by NAR’s Work Group to explain that servicers will only consider short sales after discussing directly with borrowers all their options, including options to keep the family in the home.

VIII. Announcements
A. RPAC Message
B. Real Estate Services Forum: "Fixing the Jumbo Mortgage Market," Thursday,
May 14, Marriott Ballroom, Salon 3.
C. Committee Nominations/Recommendations Due Tuesday, May 26, 2009--Flyer
D. NAR's "Right Tools Right Time" Initiative

IX. Adjournment