Last week, the House of Representatives passed, and the President signed, The Economic Growth, Regulatory Relief and Consumer Protection Act (S.2155). The Act rolls back several provisions of The Dodd-Frank Act, the law that was enacted to regulate banks following the financial crisis to help assure that tax payers would not have to bail out banks again. With the economy continuing to strengthen, smaller banks have argued that the tight regulations imposed by Dodd-Frank have made it difficult to compete. Wall Street concurs and argues that loosening restrictions would generate growth in underserved areas allowing community banks and credit unions to free up capital to lend to smaller borrowers who might not otherwise qualify for loans from larger banks.

The Act removes stress test requirements for banks with assets of less than $250 billion. This provision alone should help consumers in rural areas because credit will free up for community banks and credit unions according to Redfin chief economist Nela Richardson. Lawrence Yin, NAR chief economist expects that there will be a rise in regional construction because small, local home builders will be more likely to obtain construction loans from community banks.

The Act is getting praise across the board from the real estate industry. But there is concern that the Act opens the door to the old practices that brought about the crises in 2008. The “Volcker Rule”, which prohibits financial firms from investing proprietary funds, was eliminated for banks with less than $10 billion in assets. This could cause banks to lose federally insured money on risky investments. Fannie Mae and Freddie Mac are now required to consider alternative credit scoring models. This could open the door to loans to borrowers who don’t have the ability to repay loans. Small banks are exempt from certain disclosure requirements. Redfin’s Richardson says that this could lead to racial inequality in lending.

The result of the Act is that only the 10 biggest banks in the country remain subject to full federal oversight. House Minority Leader Nancy Pelosi (D-CA) says “it’s a bad bill under the guise of helping community banks”. Pelosi said that the Act will take us back to the pre-meltdown days.

The biggest critic of the Act and the biggest advocate of banking reform, Senator Elizabeth Warren (D-MA) said the bill would “bail out big banks again” and would increase the likelihood of taxpayer bailouts. Senator Warren argued that the Act exempts 2 dozen financial firms with assets from $50 billion to $250 billion from the strictest rules imposed by Dodd-Frank. These banks received billions of dollars in bailouts and should not have oversight relaxed says Senator Warren.  Although she supports helping community banks, Senator Warren believes the Act goes way too far.

However, the Congressional Budget Office report says that the relaxation of the regulations creates a “slightly greater risk” of another crash and bailout”. Currently, CBO says, we are at only a “small risk”. Barney Frank, one of the authors of Dodd-Frank says that there is “nothing” in the legislation that damages the regulations intended to curb risk taking by large banks. Those regulations were not weakened for the largest banks. While Frank believes the $50 billion threshold is too low and the $250 billion threshold is too high, the overall risk of harm caused by the new Act is low.

It might be too early to understand the overall effects of the new Act, but it appears that more money will be infused into real estate. If the Act is not the fore runner to further loosening of Dodd-Frank restrictions which allow reckless practices, then the Act could be a good thing. However, if it is used as a crack that Wall Street uses to burst through to fully de-regulate and return banks to the days of the Wild West, we need to be vigilant.

Last week, the House of Representatives passed HR 1153, the Mortgage Choice Act. The Act, sponsored by Representatives Bill Huizenga (R-MI), Steve Stivers (R-OH), Mike Doyle (D-PA) and David Joyce (R-OH), passed with a small amount of bi-partisan support and was strongly supported by the NAR.  The Act amends Dodd-Frank and is intended to encourage competition between smaller mortgage lenders and large financial institutions.  If ultimately passed as is by the Senate and signed by the President, the Mortgage Choice Act will in deed open up new choices for home buyers looking for financing.  However, Congress will have not only stripped away another level of consumer protection, it will have missed an opportunity to strengthen existing consumer protection.

The Act would change definitions applicable to the Qualified Mortgage Rule under Dodd-Frank allowing mortgage brokers and title companies affiliated with real estate brokers to compete with large institutions. Under the Qualified Mortgage Rule, fees and points associated with a loan can not exceed 3% of the loan amount.  Under current law, “Affiliated Businesses” must count more fees toward the cap, including fees paid to affiliated title companies (like title premium) and insurance companies, as well as monies held in escrow.  The Act changes this differing treatment allowing more competition.

The Democratic Whip report prior to the vote last week noted that the exclusion of these fees, if enacted, “could result in mortgages that turn out to be beyond the means of the borrower to repay.” However, the report failed to mention the distinction between Affiliated Businesses which the Act addressed, and larger financial institutions, which are not required to include these fees in calculating the 3% threshold.  Herein lies the missed opportunity.  While the Democrats make a good point, most home buyers are still saddled with these fees and costs, which are generally paid to unaffiliated businesses and therefore, not calculated in determining whether the borrower can afford the loan.

If either side had offered an amendment or alternate legislation to require all 3rd party costs be included in making the 3% determination, small lenders and Affiliated Businesses would be on equal footing with large institutions, which was the basis of NAR’s argument in support of the Act AND consumer protection would increase at no additional cost to the government. But this did not happen.  As a result, the Mortgage Choice Act is a failed opportunity.

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        HR 3700, The Housing Opportunity Through Modernization Act passed its first major test, clearing the House of Representatives, 427-6, on February 2, 2016. The Senate will now consider the Bill and has referred it to the Banking, Finance and Urban Affairs Committee.

        I have previously written about this legislation (see post Congress Gives Attention to Antiquated FHA Policies). The legislation, proposed by Representative Blaine Luetkemeyer (R, MO), will modernize FHA policies and will more families buy homes.  The legislation is supported by the National Association of Realtors.

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FHA requirements that condominium property be at least 50% owner occupied continues to limit the ability for potential purchasers to finance the acquisition of condominiums. This policy is antiquated and bad for home ownership. As credit becomes more difficult to obtain for home buyers generally, more condominium owners are forced to sell their units. This makes it difficult for buildings to achieve the 50% requirement, forcing more condo owners to rent and taking more units off the market. And in markets like Miami where many buildings are full of investor owners, condominiums can’t even be considered for FHA certification, and therefore, financing, leaving non-cash buyers in the cold.

Representative Blaine Luetkemeyer (R, MO) recently introduced HR 3700, the Housing Opportunity Through Modernization Act of 2015 which, if passed, will address this, and other out-dated FHA policies. The Act would require the FHA to reform the condominium recertification process by making it less burdensome than the process for certification itself and lengthening the time between each recertification. Therefore, once a project is certified, it would not have to jump through so many hoops to recertify. In addition, the FHA would be required to replace its policy on transfer fees with FHA’s “less restrictive mode”. FHA would also streamline its exemption process for its rule prohibiting certification of condominium projects with more than 25% commercial space. And, most importantly, the owner occupied requirement would be lowered from 50% to 35%.

National Association of Realtors President Chris Polychron, in recent testimony before the House Financial Services Committee,  said that the reduction in owner occupied requirement would allow current condo owners and potential buyers access to affordable financing and more choices of affordable condominiums. If passed, the Act could have the effect of increasing home sales numbers right away, thus having a positive effect on the overall economy in many communities.

In addition, on October 13, 2015, 69 members of Congress sent a letter to Secretary of Housing and Urban Development Julian Castro, urging that HUD remove barriers to homeownership by enhancing FHA’s condominium rules. The Representatives specifically pointed out that the owner-occupancy ratio is very difficult to meet and should be addressed.

It is a good sign that Congress is addressing these ancient policies from both a legislative and administrative front and that this problem is being attacked from both sides of the aisle. If homeownership is truly the American Dream, then regulatory roadblocks need to be removed in order to allow more people to achieve the dream.


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Efforts to simplify closing documentation have many kinks.  As regulation and enforcement of mortgage loan closings shifts from HUD to the Consumer Protection Finance Bureau (CPFB), real estate and loan closers face new rules that are arguably designed to provide more information to borrowers.  Anyone who has been involved in residential closings knows that lenders are notorious for changing closing figures at the last minute.  Hopefully, these new rules will have the effect of causing lenders to be more careful, as well as being more expeditious in preparing closing packages.  However, industry groups such as the National Association of Realtors and the National Association of Home Builders are urging Congress and the CFPB to provide for a grace period for enforcement of these new rules in order to give the industry time to perfect performance.  On June 3, 2015, the CFPB finally announced that enforcement of the disclosure rules will be delayed for an undefined period of time.  And, the CFPB will be “sensitive in its oversight and enforcement” to good faith efforts to compliance.  The new rules were scheduled to go into effect on August 1, 2015 and in late June, the CFPB announced the implantation date would be extended until October 3.

Here is a summary of the new rules:

  • The Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA) reforms are to be implemented on October 3, 2015.
  • Among these reforms are the elimination of Good Faith Estimates (GFEs) and Truth in Lending Disclosures that Lenders must provide to Borrowers at loan application and closing.
  • These 2 forms will be replaced by a single Loan Estimate. The Loan Estimate is to be provided at the time of loan application and a Closing Disclosure, which is essentially an update of the Loan Estimate, must be provided at least 3 business days prior to Loan Closing. Therefore, the Lender sets the closing date based on when the Closing Disclosure is provided, notwithstanding what a Purchase and Sale Agreement might provide. A three day waiting period is created.
  • If there is any change to the information on the Closing Disclosure, the 3 day waiting period will start over.

Many industry experts believe that there will be a back log of closings created by the implementation of the rules.  Lenders will be more cautious as they will be liable for the difference if their estimates are short of the actual costs of closing.  In addition, while lenders would prefer that title companies share in this burden, asking title companies to assist in the preparation of the disclosure forms, title companies likely will decline to undertake this task and assume any liability since the numbers come solely from the Lenders.

Another potential cause of closing slowdown will be that every time closing figures change, a new Closing Disclosure will need to be prepared and the 3 day window starts again.  Lenders will be forced to get it right the first time.  Closing agents should be reluctant, however, to do any “off Closing Disclosure” disbursements to expedite closings.  Once enforcement mechanisms are put in place, given the rationale for the new rules, any deviation from the rules and procedures is likely to be treated as mortgage fraud.

Finally, the days of simultaneous closings of the sale of one residence and the purchase of the new residence when 2 new mortgages are involved are likely over.  It will be virtually impossible for 2 different lenders to coordinate and agree on a closing date and generate the required disclosures in a timely fashion.  Homeowners selling one home and needing the cash in order to close on their new home should make appropriate arrangements for the inevitable gap between the closings.


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    Welcome to Assouline & Berlowe’s Florida Real Estate Law and Investment Blog with news, insights, and commentary for investors, developers, and their advisors.


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