2009 Business Issues Committee
National Association of REALTORS®
2009 REALTORS® Conference
San Diego Marriott Hotel & Marina
San Diego Ballroom B
Friday, November 13, 2009
9:00 am – 11:30 am

Chair: Bill Plattos
Vice Chair: Colleen Badagliacco
Committee Liaison: Lance Lacy
Committee Executive: Marcia Salkin, Melanie Wyne, Scott Rinn

I. Call to Order

II. Opening Remarks

III. Ownership/Conflict of Interest

IV. Approval of Previous Meeting’s Minutes

V. RPAC Fundraising Challenge

VI. Action/Discussion Items

A. Net Neutrality
Net neutrality is shorthand for the concept that Internet users should be in control of what content they view and what applications they use on the Internet.  More specifically, net neutrality requires that broadband networks be free of restrictions on content, sites, or platforms, on the kinds of equipment that may be attached, and on the modes of communication allowed, as well as one where communication is not unreasonably degraded by other communication streams.  Streaming video, virtual tours and voice-over-internet-protocol are just some of the technologies that are commonly used by REALTORS® today.  In the future, new technologies will be adopted which will no doubt require additional broadband capacity. 

The FCC has issued a Notice of Proposed Rulemaking to make binding six network neutrality principles.  Public comment is due in January with a final rulemaking expected Spring 2010.  In the Congress bills to both support and oppose net neutrality principles have been introduced.  It is likely the Congress will wait for the FCC to act before it takes further action. 

In 2007, C.A.R. and NAR adopted five principles to guide lobbying efforts on any legislation to require broadband providers to adhere to net neutral practices: 1. consumers are entitled to access the lawful Internet content of their choice; 2. consumers are entitled to run applications and services of their choice, subject to the needs of law enforcement; 3. consumers are entitled to connect their choice of legal devices that do not harm the network; 4. consumers are entitled to competition among network providers, application and service providers, and content providers; and 5. network providers should not discriminate among internet data transmissions on the basis of the source of the transmission as they regulate the flow of network content.

VII. Priority Legislative/Regulatory Update

A. Small Business Health Coverage
Twenty-eight percent of REALTORS® - more than 350,000 individuals – are uninsured.  As part of efforts to address the health insurance needs of members, NAR has advocated for more than six years for reform of the health insurance markets that provide coverage to the self-employed and small employers.  NAR continues to (1) work on the development of a viable legislative vehicle to address the health insurance problems facing the nation’s self-employed and small employer community and (2) represent the interests of the REALTORS® community in the larger comprehensive reform debate that is now ongoing.

NAR supports the passage of health reform measures that will address the access and affordability problems that the self-employed and small employers face when looking for health coverage.  Solving the problem of the uninsured must be a top legislative priority for Congress.

Efforts to craft health reform legislation have consumed the health and tax-writing committees of both the House and Senate throughout the summer and into the fall.  As of October came to an end, both House and Senate leaderships were working to meld the three versions of HR 3200, the America’s Affordable Health Choices Ac of 2009, approved in the House and two Senate bills – S. 1679, the Affordable Health Choices Act, and S. 1796, America’s Healthy Future Act of 2009 – into one House and one Senate bill, respectively.

Early reports indicated that the House would begin floor consideration of its bill during the first week of November.  Senate Majority Leaders Reid (D-NV) had announced plans to begin floor debate once the Congressional Budget Office had been able to score the bill he had been working with the chairmen of the Senate Finance and the Senate Health, Education, Labor and Pensions Committees to merge.  However, the outlook for that timeline was called into question by the Leader’s decision to include in the bill sent to CBO a public plan to which many moderate Democrats and all Republicans objected.

While each of the five bills approved between July and October differ in their details, all share a common underlying framework.  Each includes a new health insurance marketplace (i.e. and exchange), a requirement that all individuals purchase health insurance (i.e. an individual mandate), a parallel requirement for employers to provide some level of support for their employees’ health insurance coverage (i.e. an employer mandate), tax credits for individuals who purchase their own coverage and employers who provide employee health benefits, as well as very significant changes to the way in which private insurers could underwrite and price health insurance policies for both individuals and employer groups.

The self-employed and small employers, such as REALTORS® and realty firms, would benefit from the significant underwriting and rating reforms in each bill.  These reforms require insurers to treat individuals very much the same as they have always treated participants in group plans.  These include requiring insurers to accept all applicants and renew all policies, banning the use of pre-existing conditions for pricing purposes and significantly limiting how much an individual could be charged based on their age or their family structure than is currently the case under existing state insurance regulations.  While each of the measures include provisions that would ‘pay-for’ the new spending, none of those provisions include any changes to the mortgage interest deduction.

Given the fluid nature of the bills’ provisions, NAR has not taken a formal position on any of the health reform bills. NAR has though communicated with each of the policy committees, leadership and individual offices on the impact of the various components of each bill on the REALTORS® population.  Copies of NAR’s letters and statement, along with more information on the health reform debate, are available at www.realtor.org/healthrefor.

Update: On October 29, 2009, the House released the bill that would be considered on the House floor as early as the following week. NAR staff are currently reviewing the bill’s provisions.

B. RESPA
On November 17, 2008, the Department of Housing and Urban Development (HUD) published it long-awaited final rule “To Simplify and Improve the Process of Obtaining Mortgages and Reduce Consumer Settlement Costs.” The rule mandates use of a new Good Faith Estimate (GFE) and HUD-1 which will go into effect on January 1, 2010. The new forms will improve the transparency of the home buying process and consumer understanding of loan terms and settlement costs. The forms should reduce “surprises” at closing and the need for Realtors® to help explain and resolve last minute problems. In addition, the new disclosures should help consumers obtain mortgages that best fit their circumstances, thereby reducing the need for short sales and foreclosures. A period of time will be required, however, for the industry to work through compliance issues that will arise with implementation of the new forms. Towards this end, HUD is releasing a series of Frequently Asked Questions (FAQs) on its website.

The final rule also includes fee tolerances for some services with a 30-day “cure” period if tolerances are violated. The new rule also features: a new requirement that mortgage brokers disclose yield spread premiums; an “average charge” provision for some fees, and new timing provisions and fee limitations for the GFE. A subsequently withdrawn “required use” definition would have prevented home builders from offering certain incentives or creating disincentives to home buyers for using affiliated services, and may have prevented real estate brokers and agents from giving gift cards to consumers.

NAR supports HUD’s new RESPA rule which improves transparency in the home buying process by improving consumer disclosures of loan terms and the fees charged by settlement service providers. The final rule incorporates significant changes advocated by NAR to provisions in the proposed rule. The changes included a new coordinated design of the GFE and HUD-1 forms that allow consumers to more easily track changes from the GFE to the HUD-1at the time of closing; elimination of a “closing script” which would have increased the time and cost of closings and which would have come too late in the process to help consumers. In addition, HUD also removed explicit approval for volume discounts which HUD intends to study further.

In conjunction with the final rule, HUD intends to seek legislative changes to RESPA that will require delivery of the HUD-1 to the borrower three days prior to closing, establish a uniform statute of limitations applicable to governmental and private actions under RESPA, increase civil money penalties for specific RESPA sections and provide authority to HUD and State regulators to seek injunctive and equitable relief for violations of RESPA. In addition, two unresolved issues of interest to NAR members remain under consideration by HUD: broker administrative fees and home warranty marketing and sales agreements. NAR believes administration fees are charged for bona fide services that are not part of a split and that brokers may charge these fees under RESPA and Regulation X. HUD and some courts have questions whether such fees are allowable under certain circumstances. NAR continues to press HUD for clarification and resolution of these issues. With regard to home warranty marketing agreements, NAR believes that agents and brokers provide bona fide and compensable services for the services provided in the marketing and sale of home warranty contracts.

NAR will work with HUD and our industry partners to ensure that appropriate guidance is provided to industry as the rule is implemented and to further clarify its provisions. NAR will also work with Congress to ensure that any legislative changes improve RESPA and any associated legislation.

C. CFPA/Arbitration
The Obama Administration has introduced a very broad and robust set of reforms to the Nation’s financial services structure. There are thirteen separate initiatives that comprise the Administration’s plan, and as of October 5th, 2009, plans for six of these initiatives have been submitted to Congress for discussion. They focus on the following areas: over-the-counter derivatives, private fund investment advisors, insurance, investor protection, consumer financial services protection, and accountability and transparency for credit rating agencies.

House Financial Services Committee Chairman, Barney Frank, has indicated that regulatory reform will be on a piece meal basis over the next several months, beginning with the cornerstone piece of the reform plan, H.R. 3126, the “Consumer Financial Protection Agency Act”. The creation of this agency, though its mission is to focus on financial services entities, has the ability to impact real estate professionals by virtue of its far reaching authorities.

NAR believes that real estate professionals are currently subject to longstanding and robust regulation at the state level. Making real estate brokers and agents subject to regulation by the Consumer Financial Protection Agency (CFPA) could unnecessarily transform the existing relationship between real estate professionals and state regulators by imposing “national standards” applicable to real estate that do not fit all markets and causing confusion and duplicative regulation that stifles business activity.

Additionally, the bill defines financial activities broadly enough to include real estate activities. This is inconsistent with recent action by Congress that clarifies that real estate brokerage activities are not financial activities and could lead to a reversal of this important legislation.

The implementation of the CFPA, without an exclusion for REALTORS®, may curtail business activity as state regulators work to understand how existing state requirements will coexist with new national statutes that may be inappropriate for their particular market. Additionally, the movement of the governance of RESPA from HUD to the CFPA will exacerbate this issue as the new agency comes up to speed on the current state of RESPA in the marketplace.

C.A.R. and NAR currently has no policy regarding the creation of a consumer financial protection agency.

The full Conventional Finance and Lending (CFL) committee, as well as a select committee composed of the Chairs and Vice Chairs from the CFL and Business Issues committees, the political and leadership liaisons, and NAR staff have discussed, drafted, and submitted to the House Financial Services Committee (HFSC) REALTOR® concerns and recommended changes to the proposed legislation. The HFSC has jurisdiction for this legislation, H.R. 3126, the “Consumer Financial Protection Agency Act of 2009”. These concerns have been well received. Moreover, it has been indicated to NAR, by HFSC staff, that the intention of the reform was not to reach into the real estate brokerage space. NAR regulatory and legislative staffs are currently working with HFSC staff to ensure that real estate is not negatively impacted by the CFPA.

On October 22nd, the Consumer Financial Protection Agency Act was passed by the House Financial Services Committee, 39-29. The bill, which included an exclusion for real estate professionals, is headed to the floor of the House of Representatives for a vote. NAR expects that the bill will be taken up by the House prior to the 2009 NAR Annual Convention; however, enactment of the bill is not imminent as the Senate Banking, Housing and Urban Affairs Committee has yet to introduce a companion bill for discussion.

D. Data Security/Privacy/Realtor Secure
As technology has evolved and become vital for businesses to thrive, a growing number of public and private entities (including colleges, universities, health insurance companies and data brokers) that keep and maintain personal information (financial accounts, social security numbers, phone numbers), have become victims of security breaches.  These breaches expose fundamental flaws in the way that companies handle and secure consumers’ personal information. Consumer privacy has been compromised and these breaches put consumers at an elevated risk of becoming victims of identity theft.  44 states have data breach rules on the books most of them require notification when online data is breached.  Congress is considering establishing a national data breach standard and rules about how businesses secure their online data.

Data security legislation has gained traction in the Congress this year as has other consumer protection legislation.  The House bill has passed out of the House Commerce Committee, Senate bills will be considered soon in the Senate Judiciary Committee.  The overall outlook for passage this year remains murky.

REALTORS® strongly support efforts to protect their clients’ sensitive personal information but believe that any legislation must not overly burden small firms with limited resources.  In addition, any federal data security legislation should not preempt state laws which may offer state residents additional protection.

VIII. Reports (Written)

A. Red Flags Rule
The Identity Theft Red Flags and Address Discrepancy Rules require all users of credit reports to take certain actions whenever a credit report contains a notice of an address discrepancy. The rules also require all creditors, and those that regularly arrange for credit to be provided, to establish policies and procedures to protect against identity theft.

The final rules were published by all of the Federal banking agencies and the FTC on November 9, 2007 as part of a joint rulemaking originally scheduled to go into effect on November 1, 2008. The FTC extended the mandatory compliance date three times, the most recent to November 1, 2009, to allow the FTC additional time to clarify the rule and what is expected from low risk entities such as real estate agents.

If a real estate agent uses credit reports as part of his or her business, the real estate agent is required to comply with the address discrepancy provisions. If the real estate agent provides credit as part of his or her business, he or she is be covered as a “creditor” and also has to comply with the identity theft “red flag” requirements. However, even if a real estate agent does not actually provide credit, real estate agents may be considered a “creditor” under the regulation if they regularly “arrange for” credit to be extended. For example, a real estate agent that routinely helps a homebuyer by pulling credit reports, suggesting potential lenders, and assisting in the loan application process could be viewed as a “creditor” and thereby subject to the regulation. A real estate agent who is covered only because he or she “arranges” credit may have fewer requirements.

The FTC has published Red Flag Rule guidance on its website.

A How-To Guide for Business
http://www.ftc.gov/redflagsrule

Do-It-Yourself Template for Businesses at Low Risk For Identity Theft http://www.ftc.gov/bcp/edu/microsites/redflagsrule/diy-template.shtm

FTC Frequently Asked Questions http://www.ftc.gov/bcp/edu/microsites/redflagsrule/faqs.shtm

Real estate agents will have to determine the extent to which they help “arrange for” credit and the particular services they provide which might qualify them as a “creditor” under the rule. NAR has provided FAQs on Realtor.org to assist Realtors® in making that determination.

NAR Frequently Asked Questions 

B. FATF
The international fight against money laundering and terrorist financing is led by The Financial Action Task Force (FATF). FATF, based in Europe, is an inter-governmental body which serves as a “policy-making body” that works to generate the necessary political will to bring about national legislative and regulatory reforms to fight money laundering and terrorist financing. Currently, 34 countries, including the United States, belong to FATF.

FATF has published over 40 recommendations for financial institutions and, with regard to some of the recommendations, applied them to specific “non-financial businesses and professions”, including real estate agents. Other non-financial groups covered by the FATF recommendations include lawyers, accountants, notaries, casinos, and dealers in precious stones. FATF looks its member countries to implement its recommendations using a risk-based approach allowing for flexibility based on a consideration of local risk factors, industry practices and various regulatory approaches that will best achieve FATF policy objectives.

In the United States, the financial crime enforcement network, better known by its acronym, FinCEN, leads the fight against financial crimes in collaboration with FATF. FinCEN is charged with regulating and enforcing financial crime laws in the United States. Chief among these laws are the Bank Secrecy Act and the USAPATRIOT Act. FinCEN has also conducted research to determine the extent to which real estate is used to launder money in the U.S. FinCEN’s research has shown that while the practice of using real estate to launder money may not be commonplace, it does occur and therefore, needs to be addressed.

To determine an effective regulatory approach, FinCEN has published “advanced notices of proposed rulemaking” and sought comments on 1) the role of persons involved in real estate closings (2003); and, 2) the role of non-bank mortgage lenders and originators (2009). FinCEN’s incremental approach to regulating financial crimes seeks to identify existing regulations that achieve real-estate related FATF objectives; determines functions within the real estate industry that are best situated to effectively achieve FATF goals, e.g., persons involved with real estate settlements and closings, non-bank mortgage lenders and originators, attorneys, notaries, etc. and how best to apply a risk-based approach to achieve FATF goals. This approach will help to avoid overlapping or unsuitable regulations that would impose unnecessary costs or administrative burdens on small businesses which may be unsuited to achieve FATF objectives.

NAR has worked with FinCEN by submitting formal comments on proposed rulemaking, participating in FATF activities through its membership in the International Consortium of Real Estate Associations, and by educating NAR members about FATF recommendations as they apply to real estate. For example, NAR has a dedicated webpage on Realtor.org on money laundering and terrorist financing which includes articles and links to FATF and relevant U.S. government websites.

http://www.realtor.org/government_affairs/gapublic/business_issues_money_laundering

In the future, NAR will remain dedicated to continuing its work with FinCEN in the important fight against money laundering and terrorist financing.

C. SBA Lending
NAR secured a regulatory victory in 2009 by obtaining from the Small Business Administration (SBA), written confirmation that real estate agents are eligible for SBA-backed loans. This follows a 2005 regulatory victory where NAR convinced the SBA to revise the eligibility criteria for the Economic Injury Disaster Loan program which will allow real estate agents to participate in that program.

Real estate agents seeking access to scarce capital now have written confirmation from the SBA (SBA letter attached) that real estate agents are eligible for SBA-backed loans This clarification came at the request of NAR after some SBA-approved lenders were advising agents they were not eligible for loans. Earlier this year, as part of the Recovery Act, the SBA introduced new features to its flagship 7(a) and 504 loan programs thattemporarily increase the SBA guaranty up to 90% and eliminated borrower fees. NAR has recommended that these features be extended or made permanent but the Administration has not done so. In addition, the SBA began to offer new America’s Recovery Capital (ARC) loans on June 15, 2009. ARC loans, up to $35,000, are interest free, deferred payment loans, targeted for viable small businesses suffering financial hardship. The loans are 100% guaranteed by the SBA.

The Administration states that it continues to look at stimulating the housing market through improved access to capital for small business. With small banks and businesses creating between 60% and 80% of new jobs, according to the SBA, the Administration states it will continue to assist the economic recovery by targeting housing and small business.

To assist its members, NAR has launched a new webpage dedicated to SBA-backed loans. The webpage contains details of SBA programs, links to SBA resources, and NAR advocacy and guidance pertaining to SBA programs.

http://www.realtor.org/realtors/sba_loans

IX. New Business

A. Further Developing NAR Technology Policy
B. Mobile Phone Issues

X. Adjournment