Since the beginning of the 111th Congress in early 2009, National Association of Realtors (NAR) has been working closely with the Members and staffs of the House Financial Services Committee and the Senate Banking Committee to ensure that Wall Street Reform legislation did not adversely affect Realtors. Below is a summary of the issues of particular interest to REALTORS®.
Provisions of Interest to REALTORS®
CONSUMER FINANCIAL PROTECTION BUREAU (CFPB)
- NAR secured an exemption for real estate professionals performing traditional real estate activities from the jurisdiction of the Consumer Financial Protection Bureau except to the extent they are governed by existing laws such as the Real Estate Settlement Procedures Act (RESPA) that will now come under the bureau’s purview.
MORTGAGES
Risk Retention – Qualified Mortgage Exemption
- At NAR’s request, Congress included a qualified mortgage exemption from potentially costly–for both lenders and consumers–risk retention requirements.
- Congress gave the regulator flexibility in determining what a qualified mortgage is, however the mortgage must meet the standards laid out in the predatory lending portion of the bill. These standards include underwriting based upon full documentation, ability to repay, and limitations on fees among other things.
- NAR will work with the regulators to ensure that the regulatory framework maximizes access to affordable mortgages for consumers.
Qualified Mortgage Safe Harbor
- A safe harbor from the “ability to repay” requirement was created, which limits the total points and fees collected by lenders and their affiliates to 3. This provision was included over NAR’s strenuous and repeated objection.
- However, we believe there is some regulatory flexibility in this provision including flexibility for smaller loan amounts with “smaller” being left undefined.
- NAR will work diligently to ensure this provision is interpreted in a manner consistent with the best interests of real estate professionals, their lender partners, and their clients and customers.
Seller Financing
- NAR was successful in getting the legislation amended to allow an individual to conduct three seller financed transactions in a 12 month period without being subject to the complicated mortgage rules in the new Act. NAR has asked HUD to adopt a similar approach to exempt seller financing, up to three transactions in a 12 month period, from loan originator licensing requirements under the S.A.F.E. Act.
COMMERCIAL
Accounting Rules Study
- The Act requires the Federal Reserve to study the combined effects of the risk retention requirements with recent new accounting rules put in place by the Financial Accounting Standards Board (FASB) that represent dramatic changes in securitization accounting (FAS 166 and 167).
Accredited Investor
- The Act gives the SEC the authority to review the current standard and update it to reflect inflation and the characteristics of the modern economy. The bill excludes the investor’s primary residence from $1 million net worth standard. The SEC review may raise the threshold for defining a customer as an accredited investor, forcing companies that sell securities to them to register the products with the SEC.
Commercial End Users
- The Act appears to allow commercial end users – including owners, operators and developers of commercial real estate – to continue to engage in swaps used to manage commercial risk without being subjected to central clearing. However, regulators would now be authorized to impose initial and variation margins on these un-cleared trades.
Modified Crapo Amendment
- As for provisions governing securitization, the final language retained –with minor modifications– an amendment by Senator Mike Crapo (R-ID), allowing “third party” (B-piece) investors to satisfy new risk retention requirements for commercial mortgage-backed securities (CMBS). This language also directs bank regulators to consider exemptions or different risk-retention requirements for CMBS.
Securitization
- The Act requires banks that package loans into CMBS to keep 5% of the credit risk on their balance sheets. Directs regulators to exempt low-risk mortgages that meet certain minimum standards. (See “Risk Retention – Qualified Mortgage Exemption” above.)
Swaps
- Financial firms, a class that likely includes mortgage real estate investment trusts (REITS), will be required to centrally clear their swap transactions and meet margin requirements.
APPRAISAL
- Appraisers are to be compensated at a rate that is reasonable and customary for appraisal services in the market area of the property being appraised.
- Home Valuation Code of Conduct (HVCC) sunsets when Consumer Financial Protection Bureau issues interim final regulations implementing the appraisal provisions of the Dodd-Frank Act.
- A subprime mortgage requires a written appraisal of the property to be mortgaged.
• The applicant is entitled to one free copy of the appraisal.
• The applicant must be notified that the appraisal is prepared for the sole use of the
creditor. - It is unlawful to coerce, extort, collude, instruct, induce, bribe, or intimidate an appraiser in an attempt to influence the independent judgment of the appraiser.
• An appraiser may consider additional, appropriate property information including
additional comparable sales to support an appraisal, provide further detail, or
correct errors. - Appraisal Qualifications Board (AQB) Qualification Criteria for licensed and trainee appraisers becomes mandatory for the states (currently voluntary).
- The Federal Housing Finance Agency (FHFA) and the new Consumer Financial Protection Bureau become members of ASC. The Office of Thrift Supervision is no longer a member of ASC because it is being merged into the Office of the Comptroller of the Currency.
1031 LIKE KIND EXCHANGE INTERMEDIARIES
- NAR supported language requiring the SEC to conduct a study on how best to regulate 1031 Like Kind Exchange Intermediaries to end the fraudulent practices that have been taking place.
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