In a real estate environment that’s often restrained by the legislative and regulatory climate in Washington, many brokers are finding it difficult to fully regain their footing post-downturn.
During RISMedia’s Real Estate CEO Exchange, held at the Yale Club in Manhattan last week, a special presentation by the National Association of REALTORS®’s Director of Real Estate Services, Ken Trepeta, offered attendees an inside look on where current legislation stands and its potential impact on brokerage business and real estate consumers.
According to Trepeta, while 2010-2014 was the time of new rules and regulations, “2015 will be a period of implementation and enforcement of new Dodd-Frank rules and changes to HUD/FHA rules.”
While generally speaking, the real estate market continues its gradual recovery, several roadblocks are stalling the process, such as the current lending environment. “Mortgages are down due to the difficulty in trying to comply with legislative rules, tighter credit and lawsuits,” says Trepeta. “You can’t say to banks on the one hand, ‘you need to lend more money to more people,’ and then on the other hand, ‘the gift letter isn’t signed in ink so I’m going to sue you.’ Time heals all wounds, but it’s going to be a while before lending loosens up.”
Trepeta’s presentation, which was sponsored by CEO Exchange Diamond Level sponsor, Citibank, was followed by a panel of brokers who discussed how their affiliated business revenues are being obstructed by legislative and regulatory decisions. “The Future of Affiliated Business Arrangements: How to Protect Mortgage, Title, Insurance Revenue… and More” began with Trepeta’s overview of the state of the U.S. Housing Economy.
“The numbers are not spectacular,” said Trepeta in his opening remarks. “But we don’t want them to be too spectacular because in the past, that was a sign of a bad economy. We’ve had relatively steady sales over the last couple of years. The industry is doing fairly well.”
A more vibrant housing rebound is being impeded by several issues, such as the mortgage bottleneck and a significant reduction in the number of first-time homebuyers, who currently comprise less than 30 percent of sales. According to Trepeta, although pent-up demand should be yielding more first-time homebuyers into the market, a still shaky economy is fomenting uncertainty among this group.
This economic skepticism is compounded by a fair amount of cash buyers (close to 30 percent of the market) and regulatory impediments, all of which are creating a broadscale “bad psyche” among would-be homebuyers.
“The bad psyche will only get fixed with a more consistent economy,” said Trepeta. “That’s the same thing we’ll see on the regulatory front.”
Trepeta explained that several rulings have transformed real estate financing, such as Qualified Mortgage (QM) ruling, the QRM (Qualified Residential Mortgage), and RESPA/TILA (Truth in Lending Act). Additionally, the failure of Congress to extend mortgage-debt forgiveness has thwarted short sales in most states.
“A big issue for NAR legislatively is Mortgage Debt Cancellation Relief,” said Trepeta. “During a short sale, mortgage debt is forgiven; but under normal IRS tax code, that is viewed as income, even though it’s money someone never received. “
According to Trepeta, in 2007, NAR was able to have that provision temporarily side-lined, however, it expired at the end of 2013. “NAR is seeking an extension of that—no attorney will tell you to do a short sale if it will result in $10,000 – $15,000 in tax liability,” Trepeta explained. “A two-year extension would fix retroactive deals from 2013.”
The other big regulatory issue on the table for the industry is the Dodd-Frank Act’s 3-percent cap on fees and points for QMs. According to Trepeta, NAR and industry partners have been pressing to fix the calculation of fees and points that discriminate against firms with affiliates.
Trepeta estimated that 15 percent of transactions are not going through because of the 3 percent-cap ruling. “But 15 percent is not an important number to them (legislators)—it’s like they quit math class after eighth grade. No one knows precisely the cumulative costs to industry and consumers, but there are definitely compliance costs.”
While NAR is fighting this issue by lobbying for the Senate to pass HR 3211—the Mortgage Choice Act of 2013, which would amend the Truth in Lending Act (TILA) to improve upon the definitions provided for points and fees in connection with a mortgage transaction—opponents in the Senate want to see more data. “Senator Warren (the bill’s main opponent) feels that title insurance is overpriced and they feel that this (the 3 percent cap) is the method to control that,” said Trepeta. “A single Senator can really gum up the whole works.”
To that end, Trepeta urged CEO Exchange brokers to leverage relationships with local congressional representatives and “make the personal push” to get HR 3211 passed.
