Congress Passes
Financial Regulatory Reform Legislation
On Thursday, July
15, 2010, the U.S. Senate passed the Dodd-Frank Wall Street
Reform and Consumer Protection Act (H.R. 4173)
by a vote of 60-39. The President is expected to sign the
bill shortly. A large financial regulatory reform measure,
the bill includes a number of provisions that will affect
the real estate and real estate finance industry, as well
as real estate professionals. The bill also creates a "Consumer
Financial Protection Bureau" (CFPB) to regulate a broad
range of activities.
Other provisions affecting the real estate and lending industry
include:
• New rules on seller financing with regard to predatory lending,
• Creation of new anti-predatory lending and risk retention
rules,
•
Establishment of a "Qualified Mortgage" safe harbor
from risk retention rules,
• Rules governing risk retention for commercial mortgage backed
securities,
•
Changes to rules determining who is an "accredited investor",
• Sunset of the Home Valuation Code of Conduct (HVCC),
• New minimum standards governing the operation of Appraisal
Management Companies (AMCs), and
• A 3% cap on fees and points for lenders and affiliates as
part of a qualified mortgage safe harbor
Source: NAR 7/2010
House Passes Flood
Insurance Reform Bill; Senate Still Needs to Act
By a vote of 329-90, the House of Representatives approved
H.R. 5114: the Flood Insurance Reform Priorities Act, sending
the legislation to the Senate for its consideration. The
bill would reauthorize the National Flood Insurance Program
(NFIP) through September 30, 2015. It would also institute
financial reforms to address the NFIP's nearly $20 billion
in debt, including gradually phasing-in actuarial rates for
some older properties. NAR policy supports the long-term
reauthorization but not the phase-in provisions, and we will
continue to work on these provisions in the Senate, which
is expected to develop a different version of the legislation.
The outlook for Senate consideration is not clear at this
point.
Unless a longer term reauthorization is enacted, Congress
will again have to consider another short-term extension
before September 30 2010, when NFIP authority is next set
to expire. Since September 2008, the House and Senate have
not been able to agree on the NFIP debt reforms and thus
has resorted to approving a series of short-term extensions.
There have been eight such extensions so far and, twice,
the NFIP authority has been allowed to expire.
Source: NAR 7/2010
Debate on Bush Tax Rates Begins
The Senate Finance Committee held hearings July 14 to begin
the debate about the fate of the Bush tax cuts. At issue
is whether they will be extended in all tax brackets or whether
the extension will be limited only to those individuals with
less than $200,000 of adjusted gross income ($250,000 on
a joint return). Also in question is the fate of the 15%
capital gains tax rate. President Obama has proposed that
it revert to its pre-2001 level of 20%. The hearing was a
broad-ranging policy discussion only. Markup on these issues
is not anticipated until fall.
Concurrently, ranking Ways and Means Republican Dave Camp
(MI) has sent a letter to Treasury Secretary Geithner asking
for clarification of the Administration's proposal on capital
gains. Mr. Camp has asked the Secretary to state its intent
as to whether the 20% rate would include the 3.8% Medicare
tax on unearned income for upper income taxpayers and whether
it would include the indirect tax rate increases related
to the reinstatement of limitations on itemized deductions
and personal exemptions that affect upper income individuals.
Notably, the dividends-paying community has a major stake
in this debate, as well. If Congress does not act, the top
tax rate on dividend income will revert to 39.6%. Current
law taxes dividends at a top rate of 15%.
Source: NAR 7/2010
Freddie Mac Announces
Florida Condominium Effort
On March 31, 2010,
Freddie Mac announced a "Florida
Condominium Effort" to increase financing in that hard-hit
state. Under Bulletin 2010-8, lenders selling mortgages to
Freddie Mac are exempt from certain condo project requirements,
representations, and warranties if:
1. The file documents that the existing first mortgage is
owned or securitized by Freddie Mac.
2. The property seller's note date is on or before December
31, 2009.
3. The settlement date for the new mortgage is before April
1, 2011.
In another change, condominium unit mortgages secured by
units in Fannie Mae-accepted projects that receive the Fannie
Mae special approval designation for established Florida
condominium projects are not eligible for sale to Freddie
Mac.
Source: NAR 4/2010
HAFA Takes Effect on April 5, 2010
April 5, 2010, is the deadline for participating servicers
to implement the Home Affordable Foreclosure Alternatives
Program, known as HAFA. The program reportedly covers servicers
handling more than 90 percent of all mortgages.
Home Affordable Foreclosure Alternatives Program (HAFA)
To help homeowners who are unable to keep their homes under
the Home Affordable Modification Program, the HAFA program
may make a short sale or a deed-in-lieu of foreclosure a
viable option to help them avoid foreclosure. The HAFA Program,
which will take effect on April 5, 2010, provides servicer,
seller and junior lien holder incentives for these transactions
and is designed to simplify and streamline use of short sales
and deeds-in-lieu of foreclosure.
HAFA Forms Updated
The HAFA forms and guidelines (Supplemental Directive 09-09)
have been updated as of March 26, 2010.
Source: NAR 4/2010
Budget Includes Capital Gains Modifications
The newly-released Fiscal Year 2011 Budget proposal addresses
the 2011 expiration of the 15% tax rate for long-term capital
gains. Legislation in 2003 reduced the rate from 20% to 15%,
effective through December 31, 2010. The proposed change
would leave the 15% rate in place for those who file single
tax returns with adjusted gross income (AGI) of no more than
$200,000. The 15% rate would be retained for married couples
filing joint returns with no more than $250,000 AGI. The
proposal would become effective January 1, 2011.
Source: NAR 2/10
Administration's Budget Proposes $38.5 Billion for Housing
Programs
President Obama is requesting $48.5 billion for the US Department
of Housing and Urban Development (HUD). The HOME Program
includes a request for legislation that will provide $1 billion
for the Housing Trust Fund. HUD expects Hope Bonds to generate
$2.37 billion for administrative costs of the Hope for Homeowners
Program (H4H) in anticipation of $14 billion in loan volume
in 2010 and 2011.
The Federal Housing Administration (FHA) Mutual Mortgage
Insurance Program account requests $400 billion in loan guarantees.
The budget proposes a statutory revision to allow FHA more
flexibility in setting annual premiums and incorporates underwriting
changes to improve risk management. The improvements focus
on three primary criteria:
1. effect on broader housing
market stabilization and recovery;
2. effect on specific targeted populations;
3. effect on the FHA's capital reserves.
The budget requests
a $250 million credit subsidy for the Home Equity Conversion
Mortgage (HECM) Program. The administrative
budget is $207 million, an $18 million increase to allow
for the implementation of risk management enhancements. Source: NAR 2/10
New Incentive for Buyers of Fannie Mae-Owned Properties
On January 28,
2010, Fannie Mae announced incentives for buyers to help
clear its inventory of homes listed for sale
on HomePath.com. To be eligible, a buyer must be the owner-occupant
(not an investor), have the offer accepted on or after January
28, 2010, and close before May 1, 2010. Buyers may receive
an incentive of up to 3.5% of the sales price for closing
costs or the purchase of a new Whirlpool® appliance by
Fannie Mae, or a combination at the option of the buyer.
Source: NAR 2/10
More than 5 Million Homes Will be Worth Less than 75% of
Their Mortgage
By DOUGLAS MCINTYRE
About 5.1 million
mortgage holders (or roughly 10% of Americans
with mortgages) will own homes that are worth 75% or less
than what they owe on their mortgages by mid-June. This is
the conclusion of a new study by First American CoreLogic
given exclusively to The New York Times. One of the firm's
senior economists, Sam Khater, told the paper, "People's
emotional attachment to their property is melting into the
air." The most astonishing number in the study is that
it would take $745 billion to get mortgages to the point
where no home loans in the U.S. were underwater.
This research is another example of why the housing problems
in the U.S. are so intractable. Building permits rose 11%
in December, but housing starts were down. RealtyTrac recently
forecast that about 3 million homes will go into foreclosure
this year, up slightly from the 2009 numbers. A large number
of interest-rate only mortgages will reset higher in the
next two years, raising monthly payments on those loans.
Despite low mortgage rates, which have in some cases fallen
below 5%, and tax credits for some home buyers, people are
reluctant to purchase new houses. Some fear that they could
become unemployed like 10% of the full-time work force. Others
are concerned that home prices will continue to fall and
that even a home bought in 2010 could have an underwater
mortgage of its own in 2011.
The likelihood that homeowners will reach a point of despair
also increases as more homes drop below the value of the
mortgages that their owners carry. That in turn makes it
more likely that people will hand their keys over to the
bank. And troubled banks, particularly regional and community
banks, are often not in good enough financial shape to handle
mass mortgage defaults, which then puts pressure on the FDIC's
resources.
The federal government is left with few options. Even if
it saw fit to put $745 billion into programs that would reduce
mortgages on homes with underwater loans, the cost is too
high with the federal budget deficit for this fiscal year
projected to be nearly $1.6 trillion.
Without a solution, and there are almost certainly no solutions
forthcoming, home values will continue to drop this year
and probably into next.
Source: The Daily Finance 2/10
Congress Urges Solutions to Commercial Real Estate Crisis
Last week 79 Member of Congress wrote to Treasury Secretary
Tim Geithner and Federal Reserve Chairman Ben Bernanke, urging
them to take a more active role in commercial real estate
markets. While residential markets recover, commercial real
estate markets continue to suffer from a scarcity of credit,
ballooning delinquency rates and nearly $1.4 in commercial
real estate debt coming due in the next three years. The
letter, lead by Reps. Kanjorski (D-PA) and Calvert (R-CA)
was bipartisan, and asked the agencies to establish clear
methods for loan modifications, develop metrics to differentiate
performing and non-performing properties, and take other
steps to provide investor confidence in commercial real estate
markets.
Source: NAR 2/10
Congress
Allows Estate Tax Repeal
Throughout 2009,
tax professionals insisted that Congress must act on the
estate tax. Efforts for a compromise failed
at year-end, however, so the scheduled repeal of the estate
tax has now occurred. Repeal, however, is a mixed blessing.
During 2010, those who die with substantial estates will
transfer their assets to their heirs tax-free. However, the
value of the assets in the hands of the heirs (their "basis")
will be the same as the original owner's basis. If the heirs
later sell those assets, the heirs will pay capital gains
taxes on any gain at the rate in effect at the time of the
sale. No guidance has been provided for heirs who are unable
to determine the basis of the inherited assets.
In 2011, the pre-2001
law will be reinstated so that the estate tax exclusion
would be $1 million and the maximum
tax rate would be 55%. Before Congress adjourned for 2009,
the House passed a permanent rule that would have left 2009
law intact with a $3.5 million exclusion and a maximum rate
of 45%. To facilitate this change, the Senate Budget Resolution
included a so-called "unfunded reserve" that would
have allowed this change to be made without a "pay for." The
Senate was unable to reach agreement on the terms of either
a permanent or temporary estate tax rule, however, so repeal
is now in effect.
Some legislators have said that Congress will act in 2010
to make 2009 law (or something slightly more generous) permanent,
and that the changes would be retroactive to January 1, 2010.
Other commentators believe that it would be unconstitutional
to make retroactive changes to the estate tax, however, because
the estate tax is driven solely on the question of the date
of death.
Source: NAR 1/2010
Fannie
Mae Launches Special Condo Project Approval Designation
for Florida
On January 7,
2009, Fannie Mae announced a new program to help increase
the availability of mortgages in the Florida
condo market, which is probably the hardest hit condo market
in the nation. Fannie is conducting a review of hundreds
of established condo projects that are not otherwise approvable,
to determine which may receive a "Special Approval" designation.
For projects meeting the criteria designed to measure stability
of the project, lenders will be able to deliver mortgage
loans for units in these projects. Projects that receive "Special
Approval" will be listed on www.fanniemae.com. The News
Release includes a quote from NAR's First Vice President
Moe Veissi supporting "this important step to make condo
loans more readily available in Florida." NAR immediately
contacted both Freddie Mac and HUD asking them to take similar
action for their own condo programs.
Source: NAR 1/2010
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