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Top 8 Stories
Housing Market is Stabilizing and on its Way to a Recovery, Says FHA Commissioner
FHA Plays Vital Mortgage Finance Role, but Private Sector Must Return
Improving Liquidity, Reducing Inventory Critical for Stabilization, Say REALTORS®
House Committee Passes FHA Reform Bill
Draft Consumer Privacy Bill is Released
No 4.0% "Sales Tax" on Home Sales in Recently Enacted Health Reform Bill,
House Committee Approves Property and Flood Insurance Bills
Rural Housing Program Funds Exhausted in Early May - Congress is Working on a Fix

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  1. 1. Update May 2010 Update i. Housing Market is Stabilizing and on its i. Housing Market is Stabilizing and on its Way to Way to a Recovery, Says FHA a Recovery, Says FHA Commissioner Commissioner FHA has played a fundamental role in helping stabilize the nation’s ii. FHA Plays Vital Mortgage Finance Role, housing market; however, FHA reform is critical for keeping the but Private Sector Must Return housing and economic recovery on the right track. That’s according to iii. Improving Liquidity, Reducing Inventory David H. Stevens, assistant secretary of the U.S. Department of Housing Critical for Stabilization, Say REALTORS® and Urban Development and Federal Housing Administration iv. House Committee Passes FHA Reform Bill commissioner, in an address to several thousand REALTORS® gathered v. Draft Consumer Privacy Bill is Released at a special three-day real estate summit, “REALTORS® on the Rise: vi. No 4.0% “Sales Tax” on Home Sales in Stabilizing the U.S. Mortgage Finance Delivery System”, May 11-13, Recently Enacted Health Reform Bill during the REALTORS® Midyear Legislative Meetings & Trade Expo. vii. Rural Housing Program Funds Exhausted in Early May – Congress is Working on A Stevens credited increased home buyer demand, brought about by the Fix home buyer tax credits, and the federal government’s purchase of viii. House Committee Approves Property and mortgage-backed securities for helping restore consumer confidence Flood Insurance Bills and get the economy moving. “Home prices and sales are beginning to ix. NAR Submits Comments on GSE recover, inventories are down, private capital is beginning to re- Affordable Housing Goals for 2010 & 2011 emerge, investor confidence is coming back and the job market is showing signs of improvement. These all show renewed confidence in the housing market. We need to finish the job now and make the housing recovery sustainable and keep the economy on the right track,” said Stevens. Despite the signs of improving stability, Stevens said that the housing market continues to face challenges, mainly from unemployment and homeowners with negative equity. According to Stevens, helping underwater borrowers is critical to stemming the tide of foreclosures, and recently announced revisions to FHA and the Home Affordable Modification Program will help stabilize home prices and keep more people in their homes. FHA refinances will help homeowners write down principal balances or modify and restructure loans into safer, sustainable products. HAMP program changes include a forbearance, or temporary assistance, for unemployed homeowners while they look for work. Stevens said FHA continues to play a pivotal role in housing recovery and reemphasized that reform is critical. “After the housing market crashed, FHA had to step in to play a vital role. Over the past three years, FHA reacted by increasing its market share dramatically. There would be no housing market recovery without FHA; however, the program is at risk. We cannot continue to operate under the current construct if we don’t shore up its fiscal situation. We need to make FHA stronger,” said Stevens. Stevens asked REALTORS® at the end of the meeting to lend their support for the passage of H.R. 5072, the “FHA Reform Act of 2010,” which would allow FHA to hold lenders accountable for the loans they underwrite and originate, and give FHA the flexibility to respond to changes in the marketplace by granting additional authority to adjust the annual mortgage insurance premium and reduce borrowers’ upfront mortgage insurance premiums. “ ii. FHA Plays Vital Mortgage Finance Role, but Private Sector Must Return The Federal Housing Administration (FHA) plays a key role in today’s housing market, but changes are necessary to support recovery in the real estate market and general economy. That was the focus of the “Restoring the Balance of Public and Private Capital in Mortgage Finance” session on May 13 during the REALTORS® Midyear Legislative Meetings & Trade Expo. In 2009, more than 50 percent of first-time buyers used FHA to finance their home purchase, and nearly 80 percent of FHA’s purchase loans were to first-time home buyers. FHA also serves those who need to refinance out of risky adjustable- 1|Page
  2. 2. rate mortgages or subprime loans with high interest rates. In 2009, approximately 835,000 borrowers refinanced into lower interest rate FHA-insured loans, saving them an estimated $1.3 billion. Vicki Bott, deputy assistant secretary for Single Family Housing, U.S. Department of Housing and Urban Development, acknowledged FHA’s current significance in mortgage financing. “FHA has become a vibrant part of the market, but our goal is not to build market share, nor is it to retract from the market. We need to support the housing market, but we also support improving market liquidity and bringing private involvement back to the market,” she said. Bott joined panelists Steve Adamo, president and CEO, Weichert Financial Services; Scott Griffith, ERA Griffith Realty; and David Katkov, president and EVP, PMI Mortgage Insurance Co. Realtors® voiced their concerns with current lending challenges, including limited liquidity in the resort and second-home market and appraisal concerns related to the Home Valuation Code of Conduct. Panelists acknowledged there was still progress to be made, but that FHA had played a valuable role in averting larger problems. “Thank God FHA was there,” said Katkov. “FHA stepped in, as they should, but as the market heals, the balance should be restored.” Katkov described an ideal mortgage insurance balance as 50-60 percent private sector, 35 percent FHA, with the remaining portion covered by loans guaranteed by the Veterans Administration. Decreasing the current loan limits would reduce the availability of mortgages in 612 counties in 40 states, plus the District of Columbia. The resulting average limit reduction of more than $50,000 would have a dramatic impact on liquidity and could halt the housing recovery, according to NAR. iii. Improving Liquidity, Reducing Inventory Critical for Stabilization, Say REALTORS® Restoring balance in the U.S. mortgage finance system is essential to stabilizing the real estate market, according to REALTORS®, public policy officials and others who gathered at the “REALTOR® Town Hall Meeting: Strengthening and Stabilizing the U.S. Mortgage System” session on May 11 during the REALTORS® Midyear Legislative Meetings & Trade Expo. According to the 2010 NAR Member Profile, 34 percent of REALTORS® reported that the most important factor in limiting their clients’ ability to buy a home was difficulty in obtaining a mortgage. Panelists and participants at the session agreed that fixing the current mortgage finance system will be necessary for a meaningful housing recovery. Panelists offered their perspectives on the current state of the real estate market, mortgage financing, and what needs to happen to ensure a recovery. Veteran broadcast journalist Forest Sawyer moderated the session. Panelists agreed that the balance of public-private involvement in the mortgage financing process is an issue that must be addressed. “The best thing about the market today is that it’s not the market yesterday,” said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies. Retsinas remarked that REALTORS® have the opportunity to match up first-time buyers with distressed properties, but many Realtors® expressed frustration with the cumbersome foreclosure and short sales process. Phyllis Caldwell, chief, U.S. Department of the Treasury’s Homeownership Preservation Office, agreed that this is an important issue. “What we’ve learned through the Home Affordable Modification Program is that modifications are very hard. Modifications may not be for everyone, and we’re looking at other ways we can help homeowners avoid foreclosure,” she said. Caldwell noted that, with labor mobility at an all-time low, more must be done to help people sell their homes in a short sale, if necessary, to allow them to move to areas where more jobs are available. Other panelists included James Glassman, former undersecretary of state for Public Diplomacy; Alfred DelliBovi, president and CEO, Federal Home Loan Bank of New York; J. Lennox Scott, chairman and CEO of John L. Scott Real Estate; and Jack Shakett, executive, Credit Loss Mitigation Strategies, Bank of America. iv. House Committee Passes FHA Reform Bill On May 6, 2010, the House Financial Services Committee favorably reported H.R. 5072, the "FHA Reform Act of 2010." This bill, sponsored by Reps. Waters (D-CA) and Capito (R-WV), will complete several changes FHA needs to insure the solvency of the mutual insurance fund. In October, HUD released an audit that showed their capital reserves had fallen below the Congressionally-mandated level of 2%. In response, FHA announced a number of changes to the program to strengthen its financial position. This bill includes authority for FHA to increase the annual premium. To date, FHA has increased the up-front premium, because they lacked authority to increase the annual. Once this law has passed, FHA 2|Page
  3. 3. plans to reduce the up-front premium and raise the annual instead. In addition, the bill includes a number of lender enforcement provisions. NAR was successful in defeating a series of amendments by Rep. Garrett (R-NJ) that would have increased FHA's minimum downpayment requirement, prohibited financing of the upfront premium, or decreased FHA's guarantee. The bill moves next to the House Floor. v. Draft Consumer Privacy Bill is Released On May 4, 2010, Rep. Rick Boucher (D-VA) and Rep. Cliff Stearns (R-FL) unveiled a long-awaited draft proposal to protect the privacy of consumers' personal data on the internet, as well as offline. Under the comprehensive draft proposal, any entity that collects covered information about individuals would be required to provide a clear, understandable privacy policy that explains how that information is collected, used, and disclosed. Covered information would include a person's name, postal and e-mail address, telephone number, a "preference profile," and any "unique persistent identifier," such as an Internet Protocol address. Generally, entities would be allowed to gather such information about individuals unless they have affirmatively opted out. However, express opt- in consent would be required to collect sensitive data, such as medical records, financial accounts, Social Security numbers, and location information. The Federal Trade Commission would adopt rules to implement and enforce the measure. Similar state laws would be preempted, and no private right of action would be provided. NAR will work with the bill authors to address REALTOR® concerns to produce a bill minimizes the regulatory burden on REALTORS®. vi. No 4.0% “Sales Tax” on Home Sales in Recently Enacted Health Reform Bill Contrary to reports and newspaper articles circulating widely on the Internet, there is not a 4.0% "sales tax" or "transfer tax" on the sale of a home included in the recently signed health care reform bill. The analysis underlying these reports is incorrect and fails to take into account the interplay of the bill's provisions with already existing real estate tax laws that remain unchanged. What was included in the health bill is a provision that imposes a new 3.8% Medicare tax for some high income households that have "net investment income." Any revenue collected by the tax is dedicated to the Medicare hospital insurance program. This new tax will only apply to households with Adjusted Gross Income (AGI) of more than $200,000 for individuals or more than $250,000 for married couples. Since capital gains are included in the definition of net investment income, an additional tax obligation might result from the sale of real property. In the case of the sale of a principal residence, the existing $250,000/$500,000 exclusion from capital gains on the sale of a principal residence remains unchanged. Consequently, even when the AGI limits are met, the new tax would not be applied to all capital gains that result from the sale of a home. Rather, it would only apply to any home sale gain realized in excess of the $250K/$500K existing primary home exclusion that pushes the filer's AGI over the $200K/$250K adjusted gross income limit. The new Medicare tax will not take effect until January 1, 2013. For more information on the new Medicare tax, please consult NAR's Health Reform Q&A on this and other provisions of the new health reform law located at: vii. Rural Housing Program Funds Exhausted in Early May – Congress is Working on A Fix At the end of April, the US Department of Agriculture (USDA) Rural Development announced that the Single Family Housing Guaranteed Loan Program will likely be exhausted by May 7, 2010. Previously, USDA believed the program would be exhausted by April 30, 2010. Depending on Congressional activity, the Agency may consider issuing conditional commitments. Recently, the House of Representatives passed HR 5017, the "Rural Housing Preservation and Stabilization Act of 2010", sponsored by Reps. Kanjorski (D-PA) and Capito (R-WV). The bill allows the Secretary of Agriculture to increase the upfront premium for 502 single-family loan guarantees up to 4 percent in order to make the program self- sufficient. This fee may be rolled into the loan. The fee increase was necessary because the program has exhausted all funding. On April 27, 2010, Senator Bennett introduced S. 3266, the companion bill to HR 5017. The bill was referred to the Senate Committee on Banking, Housing, and Urban Affairs. 3|Page
  4. 4. viii. House Committee Approves Property and Flood Insurance Bills On April 27, 2010, the House Committee on Financial Services approved several property insurance reform bills which will now move to the floor of the full House of Representatives for consideration: H.R. 2555: "Homeowners' Defense Act" (Klein, D-FL) would provide for a federal reinsurance and loan guarantee program to help stabilize insurance rates for states that implement mitigation and building code programs and meet stringent credit-risk requirements. Without stable funding alternatives, states must maintain artificially inflated rates to hedge against risk in an increasingly volatile global reinsurance market. H.R. 5114: "Flood Insurance Reform Priorities Act" (Waters, D-CA) would: o Extend authority for the National Flood Insurance Program (NFIP) for a full 5 years, a step that would end the current month-to-month approach that has resulted in 7 extensions since September of 2008. Unless re-extended, NFIP authority will expire on May 31. o Increase the maximum coverage limits which have not been updated since 1994. o Reform and ensure continuation of a program which is now $20 billion in debt, including phasing-in actuarial rates over a 5-year timeframe for older properties which have been paying less than the market rate. For the commercial properties and non-primary residences, the phase-in would begin 3 years after enactment. The phase-in for primary residences would begin once a property is sold. The bill also extends a pilot program to mitigate properties with severe repetitive losses. H.R. 1264: "Multiple Peril Insurance Act" (Taylor, D-MS; Scalise, R-LA) would offer property owners windstorm coverage under the NFIP. According to the Congressional Budget Office, the bill would collect sufficient premiums to offset the claim payments and not contribute to the federal budget. While NAR has been urging Congress to enact a forward-looking national policy which would reduce the cost to taxpayers of post-disaster federal assistance, NAR did communicate its strong concern with proposed reforms to the NFIP, especially the move to impose "actuarial" rates on older properties, at a hearing held prior to the bill's mark-up. ix. NAR Submits Comments on GSE Affordable Housing Goals for 2010 and 2011 On April 12, 2010, NAR President Vicki Cox Golder submitted a letter to the Federal Housing Finance Agency (the regulator of Fannie Mae and Freddie Mac) commenting on its proposed affordable housing goals for Fannie and Freddie for 2010 and 2011. The letter generally supports the proposed goals as consistent with NAR's support for reasonable affordable housing goals that are consistent with sustainable homeownership. The goals are designed to avoid encouraging "uneconomic or high-risk activities" by Fannie and Freddie. Monday, May 24 Wednesday, May 26 Wednesday, June 2 April Existing-Home Sales Commercial Forecast Pending Home Sales Index Real Estate Services Staff Ken Trepeta – Director, Kara Beigay – Communications Manager, Patricia Tarhon – Project Coordinator, 4|Page