REI Report.com

The Home for State and Federal Legislative and Regulatory Information

for Residential Real Estate Investors 

Issue:  2009/07

      July 27^th, 2009 

Federal Legislative Update 

H.R. 3126 – Consumer Financial Products Agency 

House Committee Delays Vote Until Fall; Chairman Calls for National Debate on Agency 

House Financial Services Chairman Barney Frank announced that his committee would not vote on the creation of the Consumer Financial Products Agency before the August recess. The CFPA would have oversight over products and services offered by investors and speakers, and have the authority to alter or outright ban those products. Chairman Frank is calling for a “national debate” on the creation of the CFPA. 

The political play here seems evident. The CFPA has been widely criticized by the financial services industry, with criticism not just from banks but from other businesses that would be subject to oversight by the new agency. While the vote count in the House remains solid for passage, approval of the CFPA in the Senate is very questionable. The “national debate” will give Frank and his colleagues in the Senate time to counter the effective lobbying efforts of the financial services industry. 

REI Report still expects action on this measure by Frank’s committee and the House in the early fall. However, Senate action may move to 2010 given the legitimate concerns being raised by opponents of the CFPA. 

H.R. 3045 – Section 8 Voucher Reform Act of 2009 (SEVRA) 

House Committee Approves Measure Aimed at Expanding Section 8 Program 

As foreshadowed in prior reports, the House Financial Services Committee has approved the SEVRA legislation, and the bill will now move toward consideration by the full House. The following is a partial release from the committee discussing the legislation:  

“[SEVRA] would establish a stable, fair and cost-effective funding system for the Section 8 program and would ensure that no tenant is ever at risk of losing housing assistance due to unexpected budget shortfalls.  It would also restore previous assistance levels by authorizing 150,000 new vouchers.

Under the bill, several critical provisions streamline the process of providing Section 8 housing assistance. The calculations governing tenant rent payments are simplified, reducing the burden on housing agencies, tenants and private owners of subsidized housing.  The bill likewise streamlines the housing inspection process, along with administrative burdens that make it difficult to transfer vouchers between jurisdictions. Additionally, the bill provides the flexibility needed for public housing authorities to preserve affordable housing by allowing agencies to make greater use of “project-based” vouchers. 

The bill also reforms Moving to Work, renaming it the Housing Innovation Program, which currently permits the Department of Housing and Urban Development to waive certain regulations for 30 public housing agencies, allowing them to experiment with different rent structures and programs.  To ensure the efficacy of the program in addressing the needs of the most vulnerable households, the bill provides for rigorous evaluation requirements, stronger tenant protections, and clearer program goals to ensure effective use of federal funds.”

H.R. 1728 – Mortgage Reform and Anti-Predatory Lending Act 

Target of Industry Angst Still Not Receiving Serious Consideration This Year 

Because of the attention this legislation has received in the real estate investing community, REI Report will continue to include commentary every week on the bill. As previously reported, we believe that this measure is not moving, and the threats to investors lie in the overall financial reform package and the CFPA where this language could resurface. 

Federal Reserve – Regulation Z 

Board Proposes New Rules To Protect Turf, Shore Up Consumer Confidence 

The Federal Reserve announced a plan this past week to boost its consumer protection efforts amidst criticism that it has failed to protect consumers in the past, and concern that the creation of the CFPA would strip it of all consumer oversight powers. REI Report is attaching a link to the full proposal and a release issued by the Fed late last week on the proposal, which is open for public comment. 

Link: http://www.federalreserve.gov/boarddocs/meetings/2009/20090723/Board%20Memo%20CE%20and%20HELOC.pdf 

The Federal Reserve Board on Thursday proposed significant changes to Regulation Z (Truth in Lending) intended to improve the disclosures consumers receive in connection with closed-end mortgages and home-equity lines of credit (HELOCs). These changes, offered for public comment, reflect the result of consumer testing conducted as part of the Board's comprehensive review of the rules for home-secured credit. The amendments would also provide new consumer protections for all home-secured credit.

"Consumers need the proper tools to determine whether a particular mortgage loan is appropriate for their circumstances," said Federal Reserve Chairman Ben S. Bernanke. "It is often said that a home is a family's most important asset, and it is the Federal Reserve's responsibility to see that borrowers receive the information they need to protect that asset."

To shop for and understand the cost of credit, consumers must be able to identify and understand the key terms of the mortgage. In formulating the proposed revisions to Regulation Z, the Board used consumer testing to ensure that the most essential information is provided at a suitable time using content and formats that are clear and conspicuous.

"Our goal is to ensure that consumers receive the information they need, whether they are applying for a fixed-rate mortgage with level payments for 30 years, or an adjustable-rate mortgage with low initial payments that can increase sharply," said Governor Elizabeth A. Duke. "With this in mind, the disclosures would be revised to highlight potentially risky features such as adjustable rates, prepayment penalties, and negative amortization."

Closed-end mortgage disclosures would be revised to highlight potentially risky features such as adjustable rates, prepayment penalties, and negative amortization. The Board's proposal would:

• Improve the disclosure of the annual percentage rate (APR) so it captures most fees and settlement costs paid by consumers;
• Require lenders to show how the consumer's APR compares to the average rate offered to borrowers with excellent credit;
• Require lenders to provide final Truth in Lending Act (TILA) disclosures so that consumers receive them at least three business days before loan closing; and
• Require lenders to show consumers how much their monthly payments might increase, for adjustable-rate mortgages.

The Board will also work with the Department of Housing and Urban Development to make the disclosures mandated by TILA, and HUD's disclosures, required by the Real Estate Settlement Procedures Act, complementary; potentially developing a single disclosure form that creditors could use to satisfy both laws.

In developing the proposed amendments, the Board recognized that disclosures alone may not always be sufficient to protect consumers from unfair practices. To prevent mortgage loan originators from "steering" consumers to more expensive loans, the Board's proposal would:

• Prohibit payments to a mortgage broker or a loan officer that are based on the loan's interest rate or other terms; and
• Prohibit a mortgage broker or loan officer from "steering" consumers to transactions that are not in their interest in order to increase the mortgage broker's or loan officer's compensation.

The rules for home-equity lines of credit would be revised to change the timing, content, and format of the disclosures that creditors provide to consumers at application and throughout the life of such accounts. Currently, consumers receive lengthy, generic disclosures at application. Under the proposal, consumers would receive a new one-page Board publication summarizing basic information and risks regarding HELOCs at application. Shortly after application, consumers would receive new disclosures that reflect the specific terms of their credit plans. In addition, the Board's proposal would:

• Prohibit creditors from terminating an account for payment-related reasons unless the consumer is more than 30 days late in making a payment.
• Provide additional protections related to account suspensions and credit-limit reductions, and reinstatement of accounts.

State Legislative Update 

North Carolina 

Action on Anti-Investor Bill Faces Deadline; May Be Delayed Until 2010 

As the North Carolina General Assembly makes final plans to adjourn in the coming weeks, a measure that would prohibit for-profits from engaging in transactions with distressed homeowners remains pending in the House. S. 1015 passed the Senate earlier this year with unanimous approval If the measure is not approved before adjournment, the bill will “carry-over”  to 2010 when it will be up for consideration again. 

Quote of the Week 

House Financial Services Chairman Barney Frank, on the reaction of the financial services community to the creation of the Consumer Financial Protection Agency: