Flood Insurance Update:
Congressional Leadership has assured us that Flood Insurance will be renewed by 11/30, most likely through a Continuing Resolutions. Like most of the extensions, expect it to pass very close to, if not at the deadline on 11/30. More to come.
Proposed Increase to Residential Appraisal Threshold
On Nov, 20, 2018, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (collectively “the Agencies”) released a proposed rule that would increase the current threshold for residential real estate transactions requiring an appraisal to $400,000. The current threshold is $250,000. In lieu of an appraisal, an evaluation would be required that is consistent with safe and sound banking practices. This rule would only affect Federally Related Transactions overseen by the Agencies. Residential real estate transactions covered by the Fair Housing Administration, the U.S. Department of Veterans Affairs, the U.S. Department of Agriculture, Fannie Mae, and Freddie Mac would still be subject to those entities’ appraisal requirements.
NAR Submits Comment to the OCC on the Community Reinvestment Act
NAR sent a letter to the Office of the Comptroller of the Currency (OCC) in response to the agency’s advanced notice of proposed rulemaking (ANPR) that requested input on whether changes and/or updates are needed to the Community Reinvestment Act (CRA).
NAR commented on the need to preserve the original intent of the CRA, that being to expand access to residential mortgage credit for low and moderate-income homebuyers as well as borrowers of color. The OCC should consider allowing CRA-credit for housing counseling that can be tide directly to better homeownership outcomes. Likewise, given the dearth of housing supply for LMI borrowers, a greater emphasis should be placed on expanding the housing stock in that portion of the market along with financing those purchase. Finally, NAR emphasized the need to revisit how CRA assessment areas are defined given that FinTech has/will reduced the number of brick-and-mortar operations.
NAR Meets with Chairman Hensarling on Housing Finance Reform
On November 14, 2018, NAR legislative staff met with House Financial Services Committee Chairman Jeb Hensarling (R-TX) to discuss his recent housing finance reform discussion draft called the “Bipartisan Housing Finance Reform Act of 2018,” which is cosponsored by Rep. John Delaney (D-MD).
The proposal directs Ginnie Mae to guarantee mortgage-backed securities (MBS) that are backed by loans with various credit enhancements. In addition to borrowers having more skin in the game, additional credit enhancements must come from Federal Housing Finance Agency (FHFA)-approved private credit enhancers (PCEs). Once appropriate credit enhancements have been made, Ginnie Mae-approved issuers will then be allowed to issue government-backed securities through its platform.
NAR supports many components of the legislation such as an explicit government guarantee, flexibility given to regulators to set standards in the new mortgage finance system, and the use of a Common Securitization Platform (CSP) as the issuance platform for mortgage-backed securities. These provisions will help build a new housing finance system structure that will be more transparent, while providing a countercyclical mechanism to help ensure mortgage credit is available during periods of economic distress.
While these components are a good foundation for a future housing finance market, NAR provided suggestions to the Chairman that would improve the proposal. Among other things, NAR suggested to include language that would require Ginnie Mae to have a dual mandate to safeguard the secondary mortgage market, but also to ensure for a deep, liquid, affordable, and national mortgage market. Finally, NAR committed to continue to work with the Chairman to create a mortgage market that provides access to affordable mortgage credit for all creditworthy Americans, while ensuring taxpayers are properly protected.
NAR Spearheads Support for Confirmation of New BCFP Director
On November 13, 2018, NAR along with 20 other housing and financial organizations sent a letter to Senate Leaders McConnell (R-KY) ad Schumer (D-NY) urging for the confirmation of Kathy Kraninger as the next Director of the Bureau of Consumer Financial Protection (BCFP). The coalition letter stated Ms. Kraninger will not only be an asset to the BCFP, but also to Congress and the Administration to work together to strengthen our nation’s housing industry.
NAR Responds to FHFA’s Proposed Capital Rule
NAR submitted a letter to the Federal Housing Finance Agency (FHFA) in response to the agency’s request for input (RFI) on its proposed capital framework for Fannie Mae and Freddie Mac (the GSEs or Enterprises). The proposed framework would not be implemented until the Enterprises are taken out of conservatorship.
While NAR appreciates the FHFA’s efforts to reform the secondary mortgage market, NAR believes that the FHFA’s proposed framework could hamper the Enterprises’ ability to fulfill their public mission of supporting liquidity and broad access. In particular, the capital rule must do more to preserve the Enterprises’ countercyclical role in the market as well as to support affordable credit for a middle class and underserved homebuyers. The conservative nature of the capital framework as proposed may make this difficult.
BCFP Hosts Industry on QM Rule
The Bureau of Consumer Financial Protection (BCFP) hosted the first of several industry meetings this week examining the Ability-to-Repay/Qualified Mortgage Rule (ATR/QM) in anticipation of their five-year assessment of the rule, due in early 2019. The Bureau previously issued a request for information (RFI) on the rule, which NAR submitted comments(link is external), and the meeting was a chance for industry groups to provide updates on those comments.
The discussion largely focused on how to address the QM patch, set to sunset when the conservatorship ends and no later than January 10, 2021, and flexibility with Appendix Q standards, debt-to-income ratio calculations, and points and fees calculations. There was general consensus around the importance of such issue standards, but with reasonable considerations to adjust for varying factors.
A great part of the discussion also highlighted the need for flexibility for creditors when it comes to self-employed income, which includes a large majority of NAR’s members and is increasing due to the rise in gig economy workers. Such flexibility, such as through residual income testing, would ensure that Appendix Q underwriting guidelines are not inadvertently leaving these borrowers with less options than salaried employees.
NAR will continue to advocate for and support changes to the rule that ensure broad mortgage liquidity and availability.
Money Laundering GTOs Expanded
The Financial Crimes Enforcement Network (FinCEN), one of the U.S. Treasury’s leading agencies in the fight against money laundering and financing of terrorism, has renewed the Geographic Targeting Orders (GTOs) that impose data collection and reporting requirements on title companies involved in certain residential real estate transactions, effective November 17, 2018, through May 15, 2019.
The GTOs cover the geographic areas listed below for residential non-financed transactions of $300k and above (no longer just certain high-end transactions):
- California – San Diego, Los Angeles, San Francisco, San Mateo, and Santa Clara Counties
- Florida – Miami-Dade, Broward, and Palm Beach Counties
- Hawaii – City and County of Honolulu
- Illinois – Cook County (new addition)
- Massachusetts – Suffolk and Middlesex County (new addition)
- Nevada – Clark County (new addition)
- New York – Brooklyn, Queens, Bronx, Manhattan, and Staten Island
- Texas – Bexar, Tarrant (new addition), and Dallas (new addition) Counties
- Washington – King County (new addition)
While the GTOs do not impose any new obligations on real estate professionals, the title company subject to the GTO may need to consult with the real estate professional to obtain information necessary to maintain their compliance with the order. GTO compliance should not affect the real estate sales transaction or timeline for closing as title companies are required to report GTO covered transactions to FinCEN within 30 days of the closing.
The GTOs require certain title companies to identify natural persons with a 25 percent or greater ownership interest in a legal entity purchasing residential real property. A legal entity is defined as a corporation, limited liability company, partnership, or other similar business entity, whether formed under the laws of a state, or of the United States, or a foreign jurisdiction. Title companies, and their agents, must file a report with FinCEN regarding covered purchases of residential real property meeting the requirements above when such purchases are made:
- Without a bank loan or similar external financing, and
- is paid at least in part by using currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, a money order in any form, a funds transfer, or virtual currency (new addition).
The GTOs are helpful to FinCEN’s efforts to crack down on money laundering and the financing of terrorism through various illicit enterprises including foreign corruption, organized crime, fraud, narcotics trafficking, and other violations. NAR continues to be helpful and support these efforts, but opposes any mandatory reporting regulations on real estate professionals that would prove burdensome and unnecessary given the existing anti-money laundering regulations that already apply to U.S. financial institutions.
Read(link is external) FinCEN’s FAQs and announcement.
For background on this issue, visit the NAR homepage on money laundering.
For real estate professionals’ responsibilities under the law, check out NAR’s voluntary guidelines(link is external) developed with the help of FinCEN.
To learn more about anti-money laundering and FinCEN’s efforts, see NAR’s Window to the Law: New Effort to Combat Money Laundering.
For help recognizing suspicious money laundering activities, see this videocreated by NAR in partnership with U.S. Treasury Department.
FHA Releases 2018 Report to Congress
On November 15, 2018, the Federal Housing Administration (FHA) released its Annual Report to Congress on the financial health of the FHA Mutual Mortgage Insurance Fund for Fiscal Year (FY) 2018. The Fund’s capital reserve ratio was 2.76 percent, an impressive increase from 2.18 percent for FY 2017. The total capital reserves for FY 2018 are $34.86 billion, a $8.12 billion increase from FY 2017. This is the fourth year in a row that the Fund exceeded the statutory requirement to maintain at least a two percent capital reserve ratio.
The FHA forward program is strong and healthy. Per the report, the capital reserve ratio for FHA forward mortgages was 3.93 percent, up from 3.33 percent for FY 2017, demonstrating the continued strength of loan quality in the forward portfolio. Serious delinquency rates continue to decline, dropping from a rate of 4.32 percent for FY 2017 to 4.11 percent for FY 2018.
The Home Equity Conversion Mortgage (HECM) program continues to negatively affect the Fund. The HECM FY 2018 ratio was a negative 18.83 percent, demonstrating an increase in claims from FY 2017 when the ratio was a negative 18.3 percent. However, FHA recently made changes affecting the HECM mortgage insurance premiums and appraisal requirements, that are intended to stabilize the program going forward.
2019 NAR President John Smaby issued the following statement on behalf of NAR:
“The Federal Housing Administration’s 2018 Annual Report to Congress on the health of the Mutual Mortgage Insurance Fund shows positive signs for America’s housing market and overall economy. FHA’s financial health is clearly strong, as the Fund’s Congressionally mandated capital reserve ratio remains above the statutory minimum for a fourth consecutive year. The National Association of Realtors® is particularly pleased to see an increase of over $8 billion to FHA’s net economic worth, boosting the total to over $34 billion.
Under the leadership of FHA Commissioner Brian Montgomery, the FHA continues its mission of facilitating safe and affordable mortgage options for qualified borrowers, in particular first-time and minority homebuyers. FHA endorsed over one million forward mortgages in FY 2018, and given the strength of the forward program NAR believes it is time for the Administration to revisit the requirement that FHA borrowers must pay premiums for the life of the loan.
Overall, it is clear that taxpayers are continuing to benefit from an FHA that is committed to its core mission. While the Home Equity Conversion Mortgage program, which again had a negative ratio, continues to bring down the overall health of the Fund, NAR is hopeful that recent actions by the FHA to reduce the volatility of the HECM portfolio will continue to stabilize the program. The report confirms the agency is appropriately managing risks while facilitating affordable housing opportunities for lower- and middle-income Americans.”