VI. Guest Speaker: Ralph Holmen, NAR Legal, Supreme Court Consideration of RESPA Suits
VII. Discussion Items A. Review of Committee Priority Issues for 2012
B. Anti-money Laundering Education/Guidance for the Real Estate Sector The USA PATRIOT Act, the Bank Secrecy Act, and Executive Order 13224 have increased the level of the government’s scrutiny of financial transactions in an effort to prevent money laundering and block the financial dealings of terrorists. Under the USA PATRIOT Act, financial institutions are required to create anti-money laundering and customer identification programs. The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and individuals. OFAC publishes a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries collectively called Specially Designated Nationals (SDNs).
The laws impose the following duties on real estate professionals: 1. Real estate brokers and agents must report, using IRS form 8300, any single or series of related transactions in which they receive cash in excess of $10,000. 2. SDN assets are blocked, and all businesses (including real estate agents and brokers) have a responsibility to ensure that they are not dealing with any SDN by checking the list provided by OFAC. The SDN list can be found at: www.treasury.gov/sdn .
At this time real estate professionals engaged in brokerage or property management activities and their real estate firms are not required to implement anti-money laundering or anti-terrorist financing (ML/TF) programs, but the Treasury Department may expand coverage of these requirements to include real estate professionals.
NAR supports continued efforts to combat money laundering and the financing of terrorism through the regulation of entities using a risk-based analysis. Any risk-based assessment would likely find very little risk of money laundering involving real estate agents or brokers. Regulations that would require real estate agents and brokers to adopt anti-money laundering programs may prove to be burdensome and unnecessary given the existing ML/TF regulations that already apply to United States financial institutions.
On April 10, 2003, FinCen issued an advance notice of proposed rulemaking regarding anti-money laundering program requirements for “person involved in real estate closing and settlements” including real estate agents. On June 9, 2003, NAR submitted comments stating that “without evidence suggesting that regulation would substantially benefit the fight against money laundering, the burden on brokers of having to adopt and implement anti-money laundering programs clearly outweighs any perceived benefit.” In proposed rules published on December 9, 2010, covering anti-money laundering programs for non-bank residential mortgage lenders and originators, FinCEN deferred proposing rules for real estate agents and others until it could conduct further research and analysis on business operation and money laundering vulnerabilities.
B. Patent Reform Legislation U.S. patent law has remained essentially unchanged for more than 50 years. Efforts now are underway to reform patent law in response to growing concerns that the current patent system is unable to deal with challenges presented by the ever growing number of patent applications being submitted and increasing complexity of the technology for which a patent is being requested. In addition, the growing number of cases of licensing demands being made by holders of obscure software patents as well as number of patent lawsuits being filed point to the need for reform.
The real estate industry is more and more dependent on the use of information technology and software products to market properties and manage their businesses. An increase in patent-infringement claims can drag unsuspecting REALTORS® into expensive and time-consuming litigation putting all REALTORS® at risk. The recent CIVIX lawsuit is a good example. CIVIX owns a very broad patent on any online service that provides "systems and methods for remotely accessing a select group of items from a database." As a result of this patent infringement lawsuit a number of MLSs have been required to pay licensing fees to this patent holder. Patent reform could help to more narrowly tailor patents and reduced the scope of future infringement lawsuits.
NAR supports greater transparency in the patent application process including (1) a mechanism to allow practitioners with the expertise and knowledge to review and comment on the appropriateness of a patent application prior to the issuance of the patent and (2) create a streamlined and more effective process for challenging a patent outside of the judicial system.
President Obama signed the America Invents Act into law on September 16, 2011. The intent of the bill is to speed up the patent process so that innovators and entrepreneurs can bring their products to market as quickly as possible. The US Patent and Trademark Office (USPTO) is now required to draft regulations needed to implement the patent reform law. These regulations will take effect over the next 12 months.
C. Mortgage Assistance Relief Services (MARS) Rule Clarified To protect distressed homeowners from mortgage relief scams that have sprung up in recent years, the Federal Trade Commission (FTC) published the Mortgage Assistance Relief Services (MARS) final rule on December 1, 2010. The rule is now in effect. The rule had impacted real estate professionals who represent clients involved in a short sale transactions.
While the intent of the MARS rule is to protect distressed homeowners from mortgage relief scams, it is written so broadly that it also required real estate brokers and agents acting in their licensed capacity to comply when they negotiate with the lender on the terms of a short sale.
NAR and the FTC discussed the difficulty real estate brokers and agents have in complying with the literal requirements of the MARS rule since it was not drafted with a real estate sales transaction in mind. On July 15, 2011, The Federal Trade Commission (FTC) announced that it will forbear from enforcing most provisions of its Mortgage Assistance Relief Services (MARS) Rule against real estate professionals who assist financially distressed consumers in obtaining short sales from their lenders or servicers.
NAR broadly supports efforts to ensure that MARS services truly benefit consumers but noted that the disclosure language required by the rule does not make sense in a real estate brokerage context. NAR asked the FTC to amend the rule or provide additional guidance for when a real estate broker is representing a consumer in a short sale transaction.
NAR discussed with the FTC the difficulty real estate brokers and agents have in complying with the literal requirements of the MARS rule since it was not drafted with a real estate sales transaction in mind. On July 15, 2011, The FTC announced that it will forbear from enforcing most provisions of its MARS Rule against real estate professionals who assist consumers in obtaining short sales from their lenders or servicers.
The FTC’s forbearance should have the effect of resolving this issue for real estate professionals who are acting in their licensed capacity. While the Consumer Financial Protection Bureau and state attorney generals can still enforce the Rule as written, both groups are expected to follow the FTC’s lead. NAR will continue to work on obtaining a complete resolution of this issue.
D. Data Privacy, Security & Breach Legislation Public concern about the confidentiality of personal medical, financial and consumer data has put pressure on policy makers to increase regulation on the uses of this information. The recent popularity of marketers to use online advertising targeted to individual consumers has also concerned members of Congress. To date, more than 16 data privacy and security bills have been introduced in Congress. Many of these measures would: apply privacy regulations to both online and offline data collection, storage and flow; require privacy notices and impose other information safeguards. Some bills would also permit industry to develop their own self-regulatory privacy programs that, if endorsed by the Federal Trade Commission, would create a safe harbor from regulation.
REALTORS® collect, store and share a great deal of consumer information. Often, the collected data is of a sensitive financial nature. The current proposals for comprehensive privacy legislation would require nearly all REALTORS® and REALTOR® Associations to comply with the new rules. NAR is working to ensure that any future privacy law takes into account the burden on small businesses and is narrowly tailored to reduce its impact on members.
NAR adopted the following data privacy and security principles in 2010:
REALTORS® recognize that as data collection continues to become a valuable asset for building relationships with their clients, so does their responsibility to be trusted custodians of that data. Consumers are demanding increased transparency and control of how their data is used. For this reason, REALTORS® endorse the following Data Privacy and Security principles:
Collection of Personal Information Should be Transparent REALTORS® should recognize and respect the privacy expectations of their clients. They are encouraged to develop and implement privacy and data security policies and to communicate those policies clearly to their clients.
Use, Collection and Retention of Personally Identifiable Information REALTORS® should collect and use information about individuals only where the REALTOR® reasonably believes it would be useful (and allowed by law) to administering their business and to provide products, services and other opportunities to consumers. REALTORS® should maintain appropriate policies for the, reasonable retention and proper destruction of collected personally identifiable information.
Data Security REALTORS® should maintain reasonable security standards and procedures regarding access to client information.
Disclosure of Personally Identifiable Information to Third Parties REALTORS® should not reveal personally identifiable data to unaffiliated third parties unless 1) the information is provided to help complete a consumer initiated transaction 2) the consumer requests it; 3) the disclosure is required by/or allowed by law (i.e. investigation of fraudulent activity); or 4) the consumer has been informed about the possibility of such disclosure through a prior communication and is given the opportunity to decline (i.e. opt-out.)
Maintaining Consumer Privacy in Business Relationships with Third Parties If a REALTOR® provides personally identifiable information to a third party on behalf of a consumer, the third party should adhere to privacy principles similar to the REALTOR® that provide for keeping such information confidential.
Single Federal Standard NAR supports a single federal standard for data privacy and security laws in order to streamline and minimize the compliance burden.
Comprehensive federal data privacy and security legislation was introduced in both the House and the Senate this year. S. 799, the "Commercial Privacy Bill of Rights Act," was introduced by Sens. Kerry (D-MA) and McCain (R-AZ). In the House, Reps. Stearns (R-FL) and Matheson (D-UT) introduced H.R. 1528, the "Consumer Privacy Protection Act of 2011." Several hearing have been held on the topic but the likelihood of passage of comprehensive privacy legislation this year remains slim. There is still a chance that a more narrow data breach bill could pass that would proscribe the method of notification of consumers in the event of a data breach as well as require businesses to implement a data security policy. NAR has developed an educational toolkit for members and is exploring the possibility of developing a real estate industry self-regulatory program.
E. Network Neutrality Challenges 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. Networks should not restrict the equipment that may be attached to them, nor the modes of communication allowed on them. Finally, networks should ensure that communication is not unreasonably degraded by other communication streams.
The business of real estate is increasingly conducted on-line. 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 unencumbered network access.
Some real estate professionals, realty website operators and real estate industry affiliated content providers believe net neutrality provisions are necessary to prevent broadband providers (cable and telephone companies, primarily) from implementing possibly discriminatory practices that could negatively impact real estate professionals’ use of the Internet to market their listings and services. Some possible examples include practices that would (1) limit the public’s access to real estate websites, (2) limit a real estate firm access to online service providers who may be in competition with network operators’ own services, e.g. Internet phone services, or (3) charging certain websites more for the broadband speeds necessary to properly transmit or display audio or video content such as online property tour, podcast or phone services.
NAR supports seven 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; 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; 6. Broadband providers must be transparent about the service they provide and how they run their network and; 7. These principles should apply to both wireless and wire-line networks.
On December 21, 2010 the FCC issued new rules on Net neutrality. Under these rules, wired broadband providers are "prohibited from blocking lawful content, applications, services and the connection of nonharmful devices to the network." Wireless broadband providers, however, are allowed more flexibility, reflecting the technical limitations on the amount of traffic a wireless network can handle. Both wired and wireless broadband providers are subject to transparency requirements, which require them to let consumers know how they manage network activity. The new rules also allow internet service providers to charge usage-based fees for broadband, so customers using more bandwidth may be charged more for service than customers using less bandwith.
The new rules have been challenged in court by the incubent phone companies. In addition, bills have been introduced to negate the FCC's rulemaking. The legislation is not likely to advance, the court action will take several years to reach conclusion, in the meantime, the rules will be implemented as written.
F. USF Reform/Broadband Access On October 27, the Federal Communications Commission (FCC) approved major reforms to the Universal Service Fund (USF) intended to speed the deployment of high-speed internet service to rural areas. The USF is funded by long distance phone customers that has historically been used to provide wireline telephone service to rual areas. Now that fund will used to subsidize the cost of providing broadband internet service in areas where absent such support, broadband would not be available.
REALTORS® support policies to encourage the growth of strong viable communities. These changes to the USF will promote economic growth and expand opportunities for home sales. A recent study concluded that in communities where there is access to high speed internet, property values are 6% higher. Communities prosper when they gain access to high-speed Internet. Property values increase, businesses grow and jobs are created. Broadband forms the infrastructure for the American economy’s digital future. Affordable high-speed broadband will soon become almost as important as water and electricity, and the absence of broadband makes a community a less attractive location for new investment and development. Furthermore, availability of “new economy” jobs is impossible in a community with little or no broadband access.
NAR supports the following Broadband Access Principles:
• Every American should have access to a high-speed, world-class communications infrastructure • High-capacity broadband connectivity should be affordable and widely accessible • A variety of options should be considered to encourage quality broadband deployment and adoption including action by the public and private sector.
G. RESPA Updates 1. Home Warranty Legislation Does the Real Estate Settlement Procedures Act (RESPA) govern the sale of home warranty contracts?
Recent guidance by HUD has called into question whether and under what circumstances real estate professionals can be compensated for the sale of home warranty contracts. This has led to much confusion in the industry and numerous class action lawsuits.
NAR does not believe the sale of home warranty contracts should be covered by RESPA unless a lender requires a home warranty to close the mortgage transaction. NAR supports better guidance from the Consumer Financial Protection Bureau and specifically rejects the contention that the marketing of home warranties is covered under RESPA or is a mere referral.
RESPA is now under the purview of the new Consumer Financial Protection Bureau. With regard to home warranty marketing agreements, NAR believes that agents and brokers provide bona fide and separate services for the reasonable compensation they receive. NAR believes HUD erroneously limited the ability of real estate professionals to market home warranty products to the detriment of consumers who benefit the most from such products.
NAR will continue to work with CFPB and our industry partners to ensure that appropriate guidance is provided to industry. NAR will also work with Congress to ensure that any future legislative changes improve RESPA without imposing undue burdens on NAR members.
2. Truth-in-Lending/Good Faith Estimate Form Reform The Consumer Financial Protection Bureau (CFPB) started operations on July 22, 2011. The agency has been adding staff and setting up systems and should be ready to roll by the July date. They have been working on some early Dodd-Frank tasks such as combining the Good Faith Estimate (GFE) under RESPA and the Truth in Lending (TIL) statement under TILA. This process has been a pleasant surprise so far but CFPB has really not yet made it to the underlying substance of combining the two forms. It is becoming a classic potential “devil in the details” scenario.
CFPB is essentially taking rolling commentary or “pre-comments” on what is essentially a preliminary proposal to merge the two forms and the associated regulatory requirements. The process and the links to comment can be found at http://www.consumerfinance.gov/knowbeforeyouowe/. They plan several field hearings and other tests as well as numerous fine tunings of their proposed forms and other issues associated with merger of the rules and this will go on into the fall.
CFPB appears to be making a good start but it is important to realize the agency has numerous critical functions and additional powers that predecessors did not. CFPB took over responsibility for a dozen laws that affect the housing industry and homebuyers and sellers including RESPA, TILA, SAFE, HOEPA, HMDA, and FCRA. The agency should have significant resources to enforce these laws since they will be drawing on the revenues of the Federal Reserve for their budget and not Congressional appropriations. CFPB also took over the rule-making on the Qualified Mortgage (QM). The QM is the type of mortgage that will not be considered at risk of being predatory and is therefore likely to be the standard for mortgages in the future.
Perhaps most significant is the penalties and remedies CFPB can impose. CFPB can force rescissions, require restitution, limit or prohibit arbitration in certain areas, impose damages, seek injunctive relief, and impose fines that can range from up to $5000 a day for negligent offenses to $1 million a day for flagrant violations. Real estate professionals have a limited exemption from new rule-making not done under existing laws such as RESPA. However they will still be subject to all the laws transferred to CFPB and all rule-makings done under those laws including RESPA. With the new penalties and greater resources for enforcement, it is not hard to envision much more enforcement activity in the coming years and in fact, one should expect and plan for it.
So while CFPB has been refreshing in its approach so far, it is at heart a consumer protection agency and it is going to take its job seriously. Those who work there see themselves as the new “sheriff in town” and they have the weapons and ammunition to do the job. That is why it is important to watch closely as they begin their regulatory endeavors. While the work on the combined GFE/TIL form has been very open, it remains to be seen whether they will adopt the underlying regulations such as the tolerances from the 2009 RESPA rule, in the new underlying rule for the new forms. The right thing would be to scrap the unworkable tolerances but it remains to be seen if they share this view.
3. 3% Affiliate Cap The anti-predatory lending provisions in Dodd-Frank have unintended consequences for real estate brokers, their affiliates, agents, and consumers. The provisions create strong standards to ensure borrowers have the ability to repay their loans. Ability-to-repay standards have been viewed favorably and recommended by NAR since NAR’s subprime working group completed its work in 2005 and its recommendations were adopted by the Association. However, one element of the legislation has unintended consequences for firms with legitimate affiliated business arrangements under the Real Estate Settlement Procedures Act.
The predatory lending provisions include a safe harbor for mortgages that are well underwritten and in particular where “fees and points” are 3% or less than the mortgage amount. The problem arises with the definition of fees and points. The definition of fees and points in the “ability to repay” safe harbor in Title XIV discriminates against real estate brokerage firms and their affiliates by including in the calculation of fees and points, charges for title insurance and escrow as denoted in the Truth in Lending Act regulations. The House version of Dodd-Frank included language that would have addressed this problem by treating firms in legitimate affiliated arrangements under RESPA. However the provision was removed during the final negotiations between the House and Senate.
The effect of the removal of the language is that real estate and other firms with affiliated businesses such as title insurance would likely not be able to handle the whole or major elements of the transaction and still have the benefit of the safe harbor from predatory lending scrutiny.
Ascribing these charges to the affiliated lender is clearly unfair and may in fact lead to greater costs for consumers or at the very least, increased consumer dissatisfaction and decreased consumer choice. Studies show that consumers see a significant benefit to having their real estate agent and broker at the lead in the transaction and using their affiliated businesses for key services such as mortgage and title insurance. In a recent (Dec. 2010) Harris Interactive study buyers said that using affiliates saves them money (78%), makes the home buying process more manageable and efficient (75%), prevents things from “falling through the cracks” (73%), and is more convenient (73%) than using separate services.
NAR and its industry partners are asking Congress, when making adjustments or technical corrections to Dodd-Frank or through another appropriate legislative vehicle, to reinstitute the affiliate fix found in the House legislation and re-level the playing field for affiliated lenders and their industry partners and keep the door open for greater consumer choice in the lending industry. NAR is also asking the CFPB to amend the ability-to-repay/QM regulation to resolve the problem.
H. Health Care Exchange/SHOP Rulemaking (NAR FAQ) 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 reform of the health insurance markets that provide coverage to the self-employed and small employers for more than six years. Among the legislative approaches that NAR has advocated are small business health options plans (SHOP), small business health plans (SBHPs) and association health plans (AHPs). NAR continued to represent the interests of the Realtor community in the recently completed comprehensive health reform debate.
IX. New Business
X. Announcements A. 2012 Committee Leadership
B. PPI-e21 Event Report: New Solutions for America's Housing Crisis(full report) Today, with housing in at least as bad a shape as it was in 2008, housing is now the forgotten debate. The conversation over Fannie and Freddie has stalled, if not died altogether; the government’s efforts to stem foreclosures have been largely unsuccessful; and with a handful of bold exceptions, few policymakers are putting forward ideas to restore homeowner equity, cope with burgeoning inventory and spark new demand in the market.
C. 2011 Five-Point Housing Solutions Plan (Plan) NAR worked with two well-respected policy think tanks – the Progressive Policy Institute (PPI) and the Economic Policies for the 21st Century (e21) – that organized and conducted a policy meeting on October 4. New Solutions for America’s Housing Crisis brought together policy leaders, industry representatives, Members of Congress, thought leaders and the media to present ideas and make actionable recommendations intended to stimulate the growth necessary for a sustained recovery in housing and extend an ensuing positive effect on job creation and the broader economy.