Agenda Summary
National Association of REALTORS®
2009 Midyear Legislative Meetings
Marriott Wardman Park
Delaware Suite A&B, Lobby Level
Wednesday, May 13, 2009
10:00 AM – 12:00 PM

Chair: Dave Dalzell
Vice Chair: John Anderson
Committee Liaison: Lance Lacy
Committee Executive: Megan Booth/Jerome Nagy

I. Call To Order
NAR Ownership Disclosure & Conflict of Interest Policy (Click Here)

II. Approval of 2008 Annual Meeting Minutes (Click Here)

III. Guest Speaker

A. Jim Gray, NCB Capital Impact, on shared equity homeownership
B. Dave Stevens, Nominee for FHA Commissioner, invited

IV. FHA Toolkit – Train the Trainer

V. Policy Issues and Discussion

A. Shared Equity Homeownership
Shared equity homeownership is a proposal for achieving affordable homeownership that is sustainable.  The program is set up as a government program that provides funding to help a qualified family to purchase a home.  This assistance is set up as an “equity loan” (NOT a home equity loan) and makes up the difference between the buyers downpayment and the mortgage principal.  When the home is sold the government shares in the equity gain of the home.  This allows the public’s share to either be returned to the government or to help the next family that purchases the home.  In exchange for foregoing a portion of the gained equity in their home the family benefits by receiving the additional funding necessary to have purchased the home in the first place.

While there are some communities across the country that have these programs, it has yet to gain much traction here in the U.S.  Shared equity programs have however gained a great deal of popularity abroad in places like the U.K.

B. Assumable Loans
An assumable loan is when a homebuyer takes over (assumes) the existing loan on a house they are buying.  The buyer would simply come up either with cash or another loan to make up the difference between the new purchase price and the outstanding loan balance.  They would then begin making the current buyers existing loan payments at the close of escrow.  The attraction of the assumable loan to homebuyers is that they could benefit from possible lower interest rates and no fees associated with a new loan.

Assumable loans use to be common during the 70’s and early 80’s but most lenders now have non-assumable language in their loan contracts. 

C. 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.

VI. Legislative/Regulatory Updates

A. FHA Capacity/Reforms/foreclosure rate
FHA’s market share of new mortgages has skyrocketed from approximately two-percent in 2006 to roughly one out of every three loans today.  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 rate are over 50 percent.

B. Rural Housing
C. VA Reform

VII. General Information

A. Rural Housing Brochure/Toolkit
B. VA Housing Brochure/Toolkit
C. Spanish Language version of FHA Toolkit

VIII. Adjournment