Washington Weekly Update – NARFederal Tax Report

Published: March 11, 2008

Conventional Residential Lending Report

NAR Testifies: Permanently Increase the GSE Conforming Loan Limits
On March 6, 2008, Vince Malta, Chair, NAR Public Policy Coordinating Committee and 2006 President of the California Association of REALTORS testified before the Senate Banking Committee on legislative proposals to reform the regulation of Fannie Mae and Freddie Mac. In his opening remarks, Chairman Dodd (D-CT) reiterated his commitment to passing GSE reform legislation that establishes a strong, single regulator for Fannie Mae and Freddie Mac with authority over safety and soundness and mission and with the power to set capital commensurate with risk. Chairman Dodd also indicated that he believes legislation should include a strengthened commitment to housing affordability—for low-income families as well as middle-class families—by the GSEs.

NAR has long-supported GSE reform, and has led the support for increasing the conforming loan limits. In his testimony, Mr. Malta urged the Senate to increase the national conforming loan limit to no less than $625,500 and to make the conforming loan limit increase for high cost areas, as provided in the economic stimulus legislation, permanent.

Also testifying at the hearing were representatives from the Government Accountability Office, National Association of Home Builders, Mortgage Bankers Association, Low Income Investment Fund.

NAR Testimony >

Housing Issues Continue to Dominate Tax Agenda
Following enactment of the first round of economic stimulus legislation (the $600 rebate and 50% bonus depreciation package recently enacted), Senate Majority Leader Reid (D-NV) introduced a second stimulus package directed specifically toward housing issues. That package contains provisions that the Senate had approved earlier, but that were not included in the final stimulus package. One important tax provision is intended to help homeowners stay in their homes. It would allow state housing agencies to issue additional mortgage revenue bonds and to use the proceeds from those bonds to assist eligible homeowners refinance subprime mortgages. A second provision would allow some taxpayers with losses to use the net operating loss carryback benefits for 5 years rather than the two years of current law.

The legislation was called up for Senate debate on February 28. Efforts to begin debate failed, however, on a very close procedural vote. Significant controversy related to a non-tax bankruptcy provision in the package doomed the package. It is expected that the Senate Finance Committee will make an effort to craft yet another tax-based housing package.
The Senate Finance Committee held a hearing on real-estate related issues, also on February 28. The witnesses were economists and executives of large commercial real estate development companies. Much of the questioning of the witnesses revolved around a proposed tax credit for purchases of homes. Senate Johnny Isakson (R-GA) has offered a bill that would allow a $15,000 tax credit to be taken over 3 years ($5,000 a year) for the purchase of a distressed property or a newly-constructed unoccupied residence. The credit would be available for principals residences only.

It is not yet known if the Isakson tax credit will be embraced. While it does have one Democratic cosponsor, the credit has 22 Republican sponsors and is also the centerpiece of a large Republican proposal. The Senate Finance Committee generally operates on a bipartisan basis. Nonetheless, the idea of a credit is still under consideration, though such a credit may be structured differently from the Isakson bill. Senate timing, however, is uncertain.

Housing Report

Fannie Mae and Freddie Mac Reach Deal on Appraisals with NY Attorney General
On March 3, 2008, government sponsored enterprises (GSE), Fannie Mae and Freddie Mac, reached an agreement with New York State Attorney General Andrew M. Cuomo that will help eliminate conflicts of interest on mortgage appraisals. According to the agreement, the GSEs will no longer purchase mortgages from lenders that utilize internal appraisers. The Home Valuation Protection Code will be implemented establishing standards on compensation and appraiser independence. A clearinghouse of appraiser information called the Independent Valuation Protection Institute will be created, with a separate board of directors, to monitor complaints from appraisers and consumers. All lenders will be required to provide post-purchase copies of appraisal documents to the clearinghouse. The Office of Federal Housing Enterprise Oversight and the Office of the Comptroller of the Currency were involved in the negotiations.

NAR Cuomo-GSE Update and FAQ >
NYS Attorney General Press Release >
Freddie Mac Press Release >
Fannie Mae Press Release >
OFHEO Press Release >

Court Rules Against HUD on Seller-Funded Downpayment Assistance Programs
On February 29, 2008, a federal court in California ruled against the US Department of Housing and Urban Development (HUD) on seller funded downpayment assistance programs. The Nehemiah Corporation and AmericaDream, Inc. both filed suit against HUD challenging the merits of the rule and seeking an injunction blocking its implementation. The court concluded that HUD’s regulation is invalid and that HUD violated federal law by failing to explain why it reversed its favorable stance on downpayment assistance and by failing to consider reasonable alternatives to the regulation. A ruling from the US District Court for the District of Columbia is expected shortly.

In October 2007, HUD published a final rule on Standards for Mortgagor’s Investment in Mortgaged Property that establishes that a prohibited source of downpayment assistance is a payment that consists, in whole in or in part, of funds provided by the seller or any entity that financially benefits from the transaction. Certain non-profits have raised concern because they were taking contributions from property sellers, subtracting a fee, and then granting the remaining money to buyers of the same property. In essence these non-profits created a “seller-funded” downpayment program, which NAR believes can result in home price inflation and risks for increased delinquency and foreclosure. In an effort to preserve qualified downpayment programs, NAR strongly urged HUD to construe the limits on non-profit downpayment assistance as narrowly as possible.

NAR supports downpayment assistance programs to help borrowers purchase a home. Downpayment programs take many different forms. For example, NAR has been a strong supporter of the American Dream Downpayment Initiative (ADDI). Other forms of downpayment assistance permitted with this ruling include assistance from family members, the borrower’s employer, state or local governments, and charitable organizations that do not rely on a party with a financial interest in the transaction.

HUD Final Rule: Standards for Mortgagor’s Investment in Mortgaged Property >
NAR Comment Letter to HUD on Seller-Funded Downpayment Assistance >

Higher FHA and GSE Loan Limits Published
On March 6, 2008, HUD published the new loan limits for FHA and Fannie Mae/Freddie Mac (the government sponsored entities, or GSEs). These new limits were required by the Economic Stimulus Act, signed by President Bush on February 13, 2008.

The new loan limits for FHA and Fannie Mae and Freddie Mac are now calculated at 125 percent of the HUD published median area prices, with a floor of $271,050 for FHA and a floor of $417,000 for the GSEs, not to exceed $729,750. The loan limits are effective through December 31, 2008.

NAR research has indicated that increasing the FHA loan limits will help an additional 138,000 Americans achieve the dream of home ownership and will allow nearly 200,000 homeowners to refinance and potentially keep their home. In addition, NAR believes that increasing the loan limits for Fannie Mae and Freddie Mac will bolster the housing finance market, which continues to be severely stressed, by providing an immediate infusion of much needed liquidity to the nation’s mortgage market. An economic impact study conducted by NAR in January 2008 estimated that increasing the GSEs’ conforming loan limits would result in as many as 500,000 refinanced loans and could help reduce foreclosures by as much as 210,000. In addition, over 300,000 additional home sales could be generated, housing inventory would be reduced, and home prices would be strengthened by two to three percent. To find out the FHA and GSE loan limits for your community and other information about these important increases, visit NAR’s website at www.realtor.org/fha.

NAR’s website on the new FHA and GSE loan limits, with links for looking up limits in your area >

Last modified: March 11, 2008 at 7:16 am | Originally published: March 11, 2008 at 7:16 am
Printed: September 26, 2020