Federal Reserve Board Proposes Regulation to Fight Abusive Mortgage Practices
On December 18, 2007, the Federal Reserve Board released its long-awaited proposed regulation to prevent unfair or deceptive practices in the mortgage markets by all lenders, not just those with federal deposit insurance. The Fed is proposing two sets of requirements. One would apply to “higher-prices mortgages” (subprime mortgages defined as those with an interest rate at least 3 percentage points above comparable Treasury securities for first mortgages and 5 percentage points, for subordinate mortgages). The second would also apply to higher-priced (subprime) mortgages, and to most other mortgages. For higher-priced (subprime) mortgages: — Ability to Repay. The rule would prohibit lenders from engaging in a pattern or practice of lending without determining the borrower’s ability to repay the loan. — Stated Income Loans Prohibited. The rule would prohibit lenders from making stated income loans (loans without verifying income or assets). — Restrictions on Prepayment Penalties. The rule would restrict prepayment penalties, including requiring that the penalty expire at least 60 days before payments increase (usually due to interest resets). — Require Escrows/Impounds for Taxes and Insurance. The rule would require lenders to establish escrows/impounds for property taxes and insurance (borrowers could opt out after one year). For higher-priced (subprime) mortgages and most other mortgages: — Disclosure of Yield Spread Premiums (YSPs). The rule would prohibit lenders from paying mortgage brokers YSPs that are more than the amount the consumer agreed in advance to pay the mortgage broker. — Reform Servicing Abuses. The rule would prohibit certain servicing practices, such as failing to credit payments when received and failing to provide a payoff statement within a reasonable period of time. — Appraisal Reform. The rule would prohibit lenders or mortgage brokers from coercing or encouraging an appraiser to misrepresent the value of a home. Deceptive Ads. The rule would prohibit seven misleading or deceptive advertising practices, such as using the term “fixed” when the rate is not fixed. Plus, all rates or payments would have to be disclosed with equal prominence as “teaser” rates. — Early Good Faith Estimates. The rule would require truth-in-lending disclosures to borrowers early enough to use while shopping for a mortgage. Lenders should not charge any fees until the consumer receives the disclosures, except for a fee to obtain a credit report. Many of the proposals are consistent with NAR’s Responsible Lending Principles. NAR will analyze the proposal and submit comments by the deadline, around the end of March. The Federal Reserve Board press release with links to a summary of the proposed rule, the proposed rule, and related information NAR’s Responsible Lending Principles
FTC Holds Workshop to discuss Use of Social Security Numbers
On December 11 and 12 the Federal Trade Commission (FTC) held a workshop to discuss the private sector use of Social Security Numbers (SSNs). Representatives from government, private sector and consumer groups discussed the issues presented by expanded private sector use of the SSN for identity and authentication purposes. Participants discussed current uses of SSNs and other available alternatives that can be employed to reduce the potential for harm caused by identify theft.
NAR representatives attended and participated in the workshop and will continue to monitor FTC activity in this area.
Congress Provides AMT Relief
After a major showdown between the House and Senate about the so-called “Paygo” rules, Congress has passed and sent to the President a bill that would provide a “patch” that will shield millions of taxpayers from the Alternative Minimum Tax (AMT). Earlier, the House had passed a fully “paid-for” but highly controversial AMT package. That bill passed largely on party lines, as the provision that would have “paid for” the AMT patch would have substantially increased taxes on the carried interests of hedge funds, private equity funds and real estate partnerships. The Senate could not pass that bill, as it required 60 votes. Republicans and a few Democrats believe that the AMT should not be “paid for” because it was never intended to hit so many taxpayers. The Senate waived the “Paygo” rules and passed the unpaid-for version with a huge majority. Despite the efforts of House Speaker Pelosi and Chairman Rangel, no compromise could be agreed to on “pay-fors,” so a one-year “patch” was approved and has been sent to the President.
Senate Poised to Pass Mortgage Cancellation Relief
Congress has passed and sent to the President a bill that will provide tax relief for mortgage cancellation on principal residence debt. The legislation is effective for debt cancellations between January 1, 2007 and January 1, 2010. The package also extended the deduction for mortgage insurance premiums for three years. President Bush will sign the bill before Christmas. This legislation was one of NAR’s top priorities for 2007.
NAR meets with OMB staff on HUD’s new RESPA regulation
National Association of Realtor Representatives meet with Office of Management and Budget (“OMB”) staff in the Old Executive Office Building on Friday December 14th to present NAR’s views on RESPA reform. The Administration’s OMB received the Department of Housing and Urban Development’s (“HUD”) new regulation on the Real Estate Settlement Procedures Act (“RESPA”) on November 8, 2007 and has ninety days to accept, modify or return the proposed regulation. During the 45 minute meeting, NAR Vice-President Joe Ventrone provided background information on NAR’s positions regarding RESPA and the importance of improving consumer disclosures in the Good Faith Estimate (“GFE”). In addition, NAR explained the importance of matching the GFE to the HUD-1 Settlement Statement in order to allow consumers to more easily understand the transfer of information from one form to the other at the time of closing. OMB is expected to act before the full ninety day review period expires.
FTC Announces Identity Theft Online Tutorial
On Tuesday December 18th, NAR staff attended a Federal Trade Commission (“FTC”) rollout of a new Identity Theft online tutorial. FTC representatives encouraged businesses attending the briefing to utilize FTC products and speakers to increase business and consumer awareness of Identity Theft issues and remedies. To view the new online tutorial visit: http://www.ftc.gov/infosecurity/