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A proposal before federal regulators to require a minimum of 20 percent down payment on all residential transactions has prompted action among REALTORS® on a national scale. REALTORS® say if allowed to take effect, the new requirement would be detrimental to the ongoing housing and lending crisis in America and it would put home ownership out of reach for middle-income Americans.
According to NAR Research, 60 percent of recent home buyers made less than a 20 percent down payment, and it would take 14 years for a typical person to save a 20 percent down payment to buy a median-priced home. NAR is deeply concerned over banking regulators’ proposed rule for “safe,” securitized mortgage loans, called Qualified Residential Mortgage (QRM) loans. The proposed rule would require loans to have at least 20 percent down for lenders to be exempted from a 5-percent risk-retention requirement. NAR and others say congressional intent was to define safe loans as those that are soundly underwritten and therefore discourage excessive risk taking and create strong incentives for responsible lending and borrowing. The concern is that a high down payment would make home ownership unaffordable to a large percentage of buyers. The alternative to the QRM are loans for which lenders retain the required 5-percent holdback, which analysts say could cost up to 300 basis points more than QRM loans.
Proposals that require high down payments will drive more borrowers to FHA, increase costs for borrowers by raising interest rates and fees, and effectively price many eligible borrowers out of the housing market. NAR feels this will not only affect buyers, but it would also affect the ability of homeowners to sell their homes, since there would be fewer buyers who could qualify for home ownership.
NAR wants federal regulators to honor congressional intent by crafting a QRM exemption that includes a wide variety of traditionally safe, well underwritten products, such as 30-, 15-, and 10-year fixed-rate loans; 7-1 and 5-1 ARMs; and loans with down payments in the 5 to 20 percent range with PMI, where required, and with other features found in low-risk loans, such as no prepayment penalties or balloon payments.
Ask your representatives in Congress to make it clear to the regulators that this proposed regulation was not their legislative intent, and to instead implement a more reasonable Qualified Residential Mortgage (QRM) that will keep creditworthy buyers in the market and able to acquire a loan.
Every year in May, as part of the REALTOR® Service Volunteer Program (RSVP), SILVAR REALTORS® and affiliates assist seniors and the homebound with household tasks they can no longer perform on their own. The program, which was started by members in 2001 and launched by SILVAR as an official community outreach project in 2002, has expanded to include volunteers from the San Mateo County Association of REALTORS®, the Fresno Association of REALTORS®, and Santa Clara County Association of REALTORS® and Santa Cruz County Association of REALTORS®.
RSVP is now on its 10th year, and this week – May 16-20, volunteers helped seniors in SILVAR’s five districts with simple chores like washing windows, installing smoke detector batteries, flipping mattresses, light vacuuming, dusting, replacing light bulbs, changing furnace filters and trimming bushes. Many seniors expressed their gratitude for the work done by the RSVP volunteers.
Gloria from Los Altos, who is 81 years old and lives alone, was especially thrilled. It was the first time she availed of the free service and she was nearly in tears as a couple of RSVP volunteers proceeded to dust her furniture and vacuum and sweep her floors, while the other volunteers washed her windows and trimmed the bushes outside her home.
“Thank you, thank you,” a 91-year-old Sunnyvale senior resident repeatedly told the RSVP volunteers after they had flipped her mattress and washed her windows.
Peggy, 63, is a Mountain View resident who is homebound and confined to wheelchair. She has poliomyelitis (post polio syndrome) and other complications. After surgery, she learned new living skills at Valley Medical Center and was eager to manage on her own. Her closest relative is a sister who lives out of state. The REALTORS® moved furniture and boxes away from all passageways so she could maneuver her wheelchair around her home and function independently.
“I can’t thank them enough for doing this. This has been my family’s home since 1959. I live alone, but I can’t think of any other place where I would rather live. This is my home,” Peggy exclaimed.
In Los Gatos, 73-year-old Barbara, who is bedridden, was grateful that volunteers cleaned her refrigerator and stove, dusted and vacuumed her floors. “I think it’s wonderful that there are people like you that can help people like us who cannot move around anymore,” she exclaimed.
Palo Alto resident Chris, who is 80, just had hip surgery. So she welcomed the help from the REALTORS® who washed windows, fixed a door knob, picked up the clutter and moved items she didn’t need to her garage. Dave, another Palo Alto resident in his 80s, still talks about how much he appreciated the REALTORS® who went out of their way to install a hand rail in his shower stall a couple of years ago. “I am so grateful to them. I used to do a lot of things, but it’s all too much for me now,” he remarked.
An elderly Saratoga couple in their late 80s lamented that all their kids lived out of state. They manage, but welcomed help washing their windows and flipping their mattress. “It’s a wonderful thing that you do for the community. It’s very necessary for us,” they said.
At the end of the week, SILVAR members felt it was all worthwhile. For many volunteers it’s an eye-opening experience and “humbling.” They’re glad they can help out and make a difference in the lives of the seniors and the homebound in their community.
This week REALTORS® from across the nation convened in our nation’s capitol for the National Association of REALTORS® Mid-year Business meetings and visits with members of Congress. SILVAR members joined their fellow REALTORS® in Washington, D.C. to take part in NAR business meetings and personally meet with their representatives in Congress.
Along with members from the San Mateo, Santa Clara, Santa Cruz County Associations of REALTORS®, SILVAR members met with both U.S. Representatives Anna Eshoo and Mike Honda during the meetings. The SILVAR delegation included SILVAR President Gene Lentz, President-elect Suzanne Yost, Region 13 Caucus Chair Jim Hamilton, NAR Directors David Barca, Jeff Barnett, Judy Ellis, Susan Tilling, C.A.R. Directors John Tripp, Aaron Wheeler, and Federal Political Coordinator and SILVAR PAC Trustee Carole Feldstein.
In meetings with members of Congress, REALTORS® focused on five core issues important to homeowners and the housing industry. Below are the issues that were brought to the attention of our legislators.
The Future of the Secondary Mortgage Market
The GSEs, though they have been in conservatorship for almost three years, remain critical to ensuring mortgage market liquidity. Currently, estimates of GSE loan volume range as high as two-thirds of mortgage loans. There is currently a push in Congress to eliminate the GSEs. Without a viable replacement for their secondary mortgage market mission, it will mean severely restricted mortgage capital and higher costs for qualified, creditworthy borrowers. The reduction in mortgage liquidity will exacerbate downward pressure on home prices ultimately reducing the home values for existing homeowners.
REALTORS® urged that the federal government must have a continued key role in the secondary mortgage market in order to ensure that there is capital for mortgage lending in all mortgage markets under all market conditions. California’s jumbo market over the last four years has demonstrated that a purely private market is incapable of meeting all the needs of home buyers and supplying a stable flow of capital. Reform of the secondary mortgage market, in particular Fannie Mae and Freddie Mac, should be comprehensive and undertaken methodically.
Access to Affordable Mortgage Products
The current loan limits for high-cost areas are set to expire on September 30, 2011. Reverting to the statutory limits will create a decline in liquidity and hurt our nation’s economic recovery. Many argue that the loan limit increases help only higher cost areas, but this is not the case. Reverting to the statutory limits will reduce limits in 619 counties and 41 states and the District of Columbia. The average decline in loan limits will be more than $58,000.
The Dodd-Frank Act requires mortgage securitizers to retain 5 percent of the risk unless the mortgage is a qualified residential mortgage (QRM). The proposed rule issued by six federal regulators would require families to make a 20 percent down payment and meet other stringent requirements. The QRM definition is extraordinarily important because it will determine the types of mortgages that will generally be available for borrowers for the foreseeable future. Weak underwriting and toxic mortgages are the main cause of mortgage defaults, not well-underwritten mortgages with affordable down payments.
REALTORS® urged their members of Congress to oppose any decrease to FHA and GSE loan limits. Maintaining the conforming loan limit calculation and caps in high-cost areas would allow the local economic climate of each high-cost state to dictate the necessity of an increase in its conforming loan limit. Maintaining the current conforming loan limits in high-cost areas would also give everyone equal access to the secondary market.
REALTORS® also asked that members of Congress submit comments to the six regulators during the comment period and voice concern that the proposed Qualified Residential Mortgage (QRM) rule would deny otherwise creditworthy Americans affordable financing while further concentrating the lending industry in the mega-banks that are already “too big to fail.”
Preserving Home Ownership Tax Benefits
In December 2010, the President’s National Commission on Fiscal Responsibility and Reform (best known as the Deficit Commission) issued a report identifying tax and spending changes designed to significantly reduce the deficit over the next decade. That Commission recommended different tax options. At least three different approaches were included:
- Eliminate all “tax expenditures” (deductions, exclusions, credits).
- Eliminate the mortgage interest deduction (MID) for second homes and reduce the amount of allowable mortgage debt from $1 million to $500,000.
- Convert the deduction to a 12 percent tax credit.
Since the report was issued, REALTORS® have aggressively reminded Congress that any change to the tax rules that apply to home ownership would disrupt the market and cause home values to further decline. Both Rep. Eshoo and Rep. Honda were thanked for co-sponsoring H.Res. 25, which supports the existing the mortgage interest deduction.
REALTORS® expressed any change to the MID or other home ownership provisions will slow the housing recovery. Tax rates have a way of creeping up over time. Since 1986, when the rate was 28 percent, the top rate has been as high as 39.6 percent and is presently 35 percent. Reducing, eliminating or otherwise changing the value of the mortgage interest deduction will cause the value of housing to drop even more, perhaps by as much as 15 percent in some markets. This decline would be in addition to the 30 percent decline that some markets have experienced.
Short Sales
Too often, short sales are still a story of delay and unrealistic lender views of current home values, resulting in the potential buyer canceling the contract and the property going into foreclosure. Even if successful, the process usually takes many months and countless hours and often requires re-marketing because buyers lose patience and terminate the contract. Streamlining short sales will reduce the amount of time it takes to sell the property, improve the likelihood the transaction will close, and reduce the number of foreclosures. This will benefit lenders, sellers, buyers, and communities.
REALTORS® support H.R. 1498 to require servicers to decide whether to approve a short sale within 45 days of completion of the short sale request. A hearing on H.R.1498 will shine a light on the short sales issue and identify ways to make short sales work better. Delays in approving requests for a short sale remain a significant impediment to this foreclosure avoidance option. Banks are losing more than they have to because they lose much more when selling homes after foreclosure than they would if they approved reasonable short sales.
Affordable and Available Property Insurance
Floods claimed more lives and property than any other natural disaster in the U.S. over the last century. Unable to ignore the rising cost to taxpayers of disaster payments for uninsured properties or the lack of a private market for flood insurance, Congress created the NFIP in 1968. Today, 5.6 million property owners rely on the program in 21,000 communities where flood insurance is required for federally related mortgages. Since September 2008, Congress has approved nine NFIP extensions and allowed five lapses. During the June 2010 lapse, 47,000 home sales were delayed or cancelled, according to NAR survey data. Real estate markets require certainty to make the long-term investments that are vital to the U.S. economic recovery.
REALTORS® urged Congress to reauthorize the National Flood Insurance Program (NFIP) for at least five years and end the uncertainty of extensions and shutdowns. NAR supports provisions of H.R.1300 (Biggert, R-IL) to reauthorize NFIP through 2016 but oppose its privatization pilot program which would reduce the program’s risk pool and long-term viability. NAR opposed H.R. 435 (Miller, R-MI) to sunset the NFIP by 2013 and authorize interstate compacts.
Next week (May 16-20) is SILVAR’s annual RSVP (REALTOR® Service Volunteer Program), when REALTORS® and affiliates from SILVAR assist seniors and the homebound with household tasks, like washing windows, installing smoke detector batteries, flipping mattresses, light vacuuming, dusting, replacing light bulbs, changing furnace filters and trimming bushes.
This year, each district has scheduled a certain day(s) when volunteers will work in senior homes:
CUPERTINO/SUNNYVALE DISTRICT
RSVP Day: Wednesday, May 18
District RSVP Chair: Sue Bose
For more information, email suebose@yahoo.com or call (408) 835-3330
LOS ALTOS/MOUNTAIN VIEW DISTRICT
RSVP Day: Wednesday, May 18
District RSVP Co-chairs: Susan O’Brien and David Kim
For more information, email sobrien@interorealestate.com or davidkim@interorealestate.com, or call (650) 947-2900
LOS GATOS/SARATOGA DISTRICT
RSVP Day: Thursday, May 19
District RSVP Chair: Rick White
For more information, email rick@serenogroup.com or call (408) 335-1400
MENLO PARK/ATHERTON DISTRICT
RSVP Day: Thursday, May 19
District RSVP Chair: Chris Isaacson
For more information, email christopher.isaacson@cbnorcal.com or call (650) 851-2666
PALO ALTO DISTRICT
RSVP Day: Wednesday and Thursday, May 18-19
District RSVP Chair: Jeff Beltramo
For more information, email jbeltramo@cbnorcal.com, or call (650) 325-6161
The Cupertino First-time Home Buyer Seminar held last Saturday was well-attended.
The City of Cupertino and SILVAR’s Equal Opportunity Committee partnered to present a First-Time Home Buyer Seminar at the Cupertino Community Hall last Saturday. SILVAR members served as panelists in discussions focusing on credit information and tips for first-time home buyers. A third segment of the seminar was presented by The Housing Trust of Santa Clara County.
Presenting advice on credit, Richard Miller (Proficio Mortgage Ventures), Kenneth Chan (HSBC), and Jimmy Kang (Bank of America) stressed now, more than ever, your FICO score is very important. Miller recommended that potential buyers check their FICO score at least once a year to make sure their credit report is accurate; six credit cards are ideal; and make sure debt on each credit card is no more than 30 percent of the allowed credit. Chan informed international buyers of requirements for buying property here in the U.S. Kang talked about the different loans available for buyers.
A panel of REALTORS® with Chris Alston (Keller Williams Realty), Nina Daruwalla (Coldwell Banker), Grace Keng (Re/Max Real Estate Services), and Moise Nahouraii (Referral Realty) informed prospective home buyers that these days, in addition to having a good credit rating and history, they need to get pre-approved by a lender before they start looking at homes or contacting a real estate professional. They differentiated between a REALTOR® and a real estate agent, stressing REALTORS® pledge to abide by a Code of Ethics. They reminded buyers there is no “perfect home,” but with the help of a REALTOR® who is knowledgeable and employing good negotiating strategies, one can find the best property for the best value and clinch the deal.
Dan Lachman, program manager of The Housing Trust of Santa Clara County, then shared information on programs that provide financial assistance to first-time homebuyers, including the Closing Cost Assistance Program (CCAP), the Mortgage Assistance Program (MAP) and Equity Share Co-Investment (ESCO).
“Almost 80 percent of all home searches today begin on the Internet. With just a few clicks of the mouse, home buyers can search through hundreds of online listings, view virtual tours of neighborhoods and homes,” said Tess, Crescini, chair of SILVAR’s Equal Opportunity Committee. “Many prospective home buyers don’t realize a lot of preparation is needed before their search. We hope we were able to educate them about these important steps, so their home buying experience can be successful.”
Crescini moderated the SILVAR panels, along with Sue Bose, who is also a member of the committee. The weekend seminar was held in observance of Affordable Housing Week. Also represented at the event were credit counselors from SurePath, West Valley Community Services, Neighborhood Housing Services Silicon Valley, Project Sentinel and Habitat for Humanity.
See article and more photos on here.
On Wednesday, more than 50 members of the Silicon Valley Association of REALTORS® (SILVAR) joined thousands of REALTORS® from across the state in Sacramento for Legislative Day. They met with their legislators and discussed important issues concerning the real estate industry.
At the Sacramento Convention Center, California REALTORS® were greeted in the morning by California Association of REALTORS® President Beth Peerce and then briefed on hot issues by the C.A.R. leadership. Special speakers at this session included Assemblymember John Perez (D-Los Angeles) and State Senator Sam Blaskeslee (R-San Luis Obispo).
Both Perez and Blakeslee pledged their support for REALTORS®, stating housing is key to California’s economy. They also said the state faces a record budget deficit and legislators continue to be embroiled in a battle over cuts and taxes. Perez said the only option to fix the budget crisis is to extend revenues for the duration of the crisis. “The best way is to come together and force a consensus. I’m asking you to go back to your communities and keep the conversation going,” said Perez.
At a joint SILVAR, SAMCAR (San Mateo County Association of REALTORS®) and SCCAOR (Santa Clara County Association of REALTORS®) luncheon, guest speaker Richard Costigan, senior director of state and government affairs for Manatt, Phelps & Phillips, LLP, told REALTORS® the only revenues legislators should be talking about are revenues associated with job growth, because job creation is key to fixing the state’s economy.
SILVAR Members are pictured here before heading to the State Capitol building to meet with legislators.
A number of ideas to close the state’s budget gap have been floating around, some of which would be harmful to real estate and REALTORS®. As “lobbyists for the day,” REALTORS® sought to educate their legislators on these issues and ask for their votes. They urged legislators to oppose the following ideas and explained why:
1. Forced overwitholding on independent contractors. There is no evidence that independent contractors are failing to pay their income tax obligations. This change would merely create significant administrative burdens for individuals and create more administrative costs to the Franchise Tax Board, since it would have to make refunds to those independent contractors whose withholding amount remitted to the state exceeds their income tax obligation.
2. Tax on services. Over the years, several pieces of legislation have been proposed to impose a sales tax on special services that are currently exempt from taxation. A tax on real estate related services will increase the cost of housing because all services involved in purchasing a home will be taxed (e.g., appraisal, home inspection, structural pest control inspection, escrow services, loan fees, etc.).
3. Changes to the mortgage interest deduction (MID). As state and federal budget deficits have grown, legislative interest has increased at both levels of government in scaling back the cost of the MID. Both state and federal law limit the deduction to the interest paid on a maximum $1 million of mortgage debt (first and second homes), plus $100,000 in home equity debt. The MID encourages home ownership, which promotes community stability and pride, employment, savings and long-term investment – values that have made the U.S. strong and prosperous.
REALTORS® also requested a “No” vote on SB 184 (Leno) – Rent Control. SB 184 will weaken the landmark Costa-Hawkins law limiting rent control, by allowing local jurisdictions to control rents on newly constructed rental housing. This bill will discourage the creation of new rental housing, which is badly needed.
SILVAR members met with State Senator Joe Simitian (D-Palo Alto) and Assembly Members Paul Fong (D-Cupertino), Jim Beall, Jr. (D-San Jose) and Rich Gordon (D-Menlo Park). SILVAR’s leadership also met with the staff of State Senator Elaine Alquist (D-Santa Clara) and State Senator Blakeslee. The legislators listened intently to REALTOR® concerns and pledged their support for issues raised, but it was obvious fixing the budget weighed on their minds and negotiations had clearly taken a toll on them. Fong described the task as a “very trying experience.”
Simitian called the idea of overwitholding on independent contractors a “gimmick.” He also stressed the budget is in crisis and property values could, in the long-run, be affected. He said Silicon Valley is a relatively prosperous area, where the housing crisis may seem remote compared to other areas, but “eventually cuts will affect your property values.” He asked REALTORS® to push people to get the “yes” vote on the tax extension in the June ballot.
Beall said the state lacks infrastructure planning and needs an international trade policy to stimulate jobs. “The state doesn’t look at outcomes enough compared to local governments,” Beall remarked.
Beall also invited members to attend his neighborhood coffees. “This is a very difficult environment to work in,” Beall said. “Keep me connected and invite me to your affairs. I want to make sure I stay grounded with everything.”
Like the other legislators, Gordon professed his support of the mortgage interest deduction. “The strength of democracy is in maintaining a strong middle class. One of the ways we have sustained and maintained a strong middle class is through the deduction. Democracy is also dependent on a strong sense of community. Home ownership is one of the critical factors in the creation and maintenance of community,” said Gordon.
Gordon also noted the importance of REALTORS® and the industry. “Your industry is so important to California not only because of the economy, but because you help build the communities that create the kind California we all want … So the mortgage interest deduction is a critical element in creating the kind of place that we all want.”
See more of our Legislative Day photos here.
Silicon Valley Association of REALTORS® says ... 