By Ken Trepeta
RISMEDIA, December 8, 2010—The 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 most important actions NAR took on key issues and steps that NAR is currently taking to address outstanding items.
Consumer Financial Protection Bureau (CFPB)
NAR secured an exemption for real estate professionals performing traditional real estate activities from the jurisdiction of the CFPB 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. The legislation also requires that the Good Faith Estimate and the Truth in Lending disclosure be unified. That process has already begun and NAR is working with industry partners and the administration to minimize the impact.
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, but it must be no less than the standards laid out in the predatory lending portion of the bill, which includes such concepts as underwriting based upon full documentation, ability to repay, and limitations on fees among other things.
Qualified Mortgage Safe Harbor – A safe harbor from the “ability to repay” requirement was created that limits the total points and fees collected by lenders and their affiliates to three points. This provision was included over NAR’s strenuous and repeated objection. NAR is working to get Congress to restore an exemption for affiliates duly constituted under RESPA.
Accredited Investor – 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 - Legislation 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.
Securitization – 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.
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. The Home Valuation Code of Conduct (HVCC) will sunset when CFPB 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.
An applicant must be notified that the appraisal is prepared for the sole use of the creditor. It is also unlawful to coerce, extort, collude, instruct, induce, bribe, or intimidate an appraiser in an attempt to influence the independent judgment of the appraiser. In addition, an appraiser may consider additional, appropriate property information to support an appraisal, provide further detail, or correct errors. Finally, the Appraisal Qualifications Board (AQB) Qualification Criteria for licensed and trainee appraisers becomes mandatory for the states (currently voluntary).
The Dodd-Frank Act is complex and mandates numerous new regulations over the next 18-36 months. NAR will be working diligently to minimize the impact of these regulations even as we work on the legislative front to address other issues.
Ken Trepeta is the director of Real Estate Services for the National Association of REALTORS.