|
Mortgage Matters is a monthly article made available by the CAI National Office
Federal Reserve Issues Guidance to Banks on REO Rentals April 2012
On April 5, the Federal Reserve System issued guidance to banks intended to spur the temporary conversion of Real Estate Owned (REO) to rental property. Earlier this year, the Federal Reserve strongly encouraged the sale of REO to investors for use as rental properties. With this new guidance, the Federal Reserve is offering banks the option to keep ownership of REO properties while making the properties available for rent. The Federal Reserve's REO rental guidance will impact CAI's members in two general areas.
Under the guidance, banks with more than 50 REO rental properties must show compliance with all federal, state, and local laws and regulations, including landlord-tenant laws and property maintenance standards. Banks must ensure rental REO properties are adequately insured and that property obligations are met on a timely basis. Additionally, the Federal Reserve specifically requires that banks review community association bylaws to determine if properties may be rented.
The Federal Reserve also requires that banks partner only with property management companies or other third-party property managers that have expertise in management of residential property. Banks must ensure all third-party property managers are in sound financial condition and have a demonstrated track record in managing residential properties. Additionally, property managers must possess adequate information management systems for comprehensive reporting on all aspects of managing the bank's REO rental portfolio, which include tracking of rents, lease agreements, property maintenance and other similar requirements.
Federal banking regulators have traditionally taken the view that banks should make every effort to dispose of REO in an orderly but expeditious manner. It has been a long-standing policy of banking regulators to minimize the mixing of banking operations and commercial activities. This policy was reinforced by Congress as recently as 2009 with adoption of the Fiscal Year 2009 Omnibus Appropriations Act, which expressly prohibits banks from engaging in real estate brokerage or management services as a line of business. The new guidance applies only to bank REO and is intended to offer banks additional flexibility to manage balance sheet risk associated with a substantial REO portfolio.
As part of our ongoing Mortgage Matters program, CAI is working to protect homeowners in community associations and to ensure access to fair and affordable mortgage products for all current and potential community association residents. You can follow our work and share your thoughts at www.caimortgagematters.org. CAI will continue to monitor and participate in shaping changing federal housing policies to ensure the perspective of community associations is heard. This is one of the many benefits of belonging to an organization that works for you on the local, state and federal level.
CAI Secures Important Transfer Fee Victory: March 2012
On March 15, 2012, the Federal Housing Finance Agency (FHFA) issued its long awaited final rule on transfer fees. FHFA had proposed a federal regulation which would have banned federally backed mortgages for property in a community association with a deed-based transfer fee. As originally drafted, the proposed rule would have cut-off nearly all mortgage funding to the 11 million housing units, or 49 percent, of all community association housing that have existing deed-based transfer fees. Over the past two years, CAI members worked diligently to gather data on transfer fees, submitted comments to FHFA and brought the issue to the attention of key lawmakers. The final rule issued on March 15 shows that those efforts were an enormous success.
FHFA;s final rule adopted nearly all of CAI's recommendations. FHFA will continue to allow deed-based transfer fees charged by community associations. In addition, FHFA has clarified that any such fee which benefits the community in which it is levied will continue to be allowed under the new rules.
Specifically, FHFA requires that all private transfer fees created on or after February 8, 2011, must provide a direct benefit to the properties upon which they are levied. Private, deed-based transfer fees that directly benefit property are considered "excepted transfer fee covenants" and are allowed under the FHFA rule. An "excepted transfer fee covenant" is defined as a covenant that requires payment of a private transfer fee to a covered association and limits the use of such fees exclusively to purposes which provide a direct benefit to the property on which the fee is charged. FHFA also provides guidance on what a direct benefit means under the rule. Allowable uses for the transfer fee funds will include use for maintenance and improvements to the property, administration costs, and acquisitions. Transfer fees will also be able to be used for cultural, educational, charitable, recreational, environmental, conservational and other activities provided they are conducted in or protect the community or adjacent property or they are conducted on property that is used primarily by residents of the community.
The FHFA victory on transfer fees is just part of the story. In 2011 there was model legislation introduced in state legislatures across the country which would have banned any and all transfer fees. This would have included all deed-based transfer fees as well as any fees charged by management companies or other business partners in conjunction with the sale of property in a community association. CAI worked with the National Association of Realtors and the American Land Title Association, sponsors of the model bill, to amend the language to allow for transfer fees charged by associations and their agents to be exempt from the proposed statutory ban. As a result of this outreach and the hard work of our state legislative action committees, nearly all of the 32 states that enacted transfer fee bans have statutory exemptions for community associations and their agents.
It is unprecedented for an organization like CAI to achieve such a clear victory in such a compressed time period across the spectrum of state and federal law, but thanks to the work of CAI and our members, we have achieved a victory that will help ensure the financial health of all community associations.
As part of our ongoing Mortgage Matters program, CAI is working to protect homeowners in community associations and to ensure access to fair and affordable mortgage products for all current and potential community association residents. You can follow our work and share your thoughts at http://www.caimortgagematters.org/ and on Twitter at @CAIGPA. CAI will continue to monitor and participate in shaping changing federal housing policies to ensure the perspective of community associations is heard.
The "REO" Speed Wagon: February 2012
For most of us of a certain age, the question "How much REO do you have in your portfolio?" was usually answered in terms of the number of eight-track tapes. Of course with the advent of the housing crisis, this term, which references Real Estate Owned or bank-owned property, has become the benchmark of distress for communities across the country. Now important policy announcements by the federal government will turn loose a veritable "REO" speed wagon on community associations across the country and we need to be prepared for the potential impact.
Bad metaphors aside, mortgage giant Freddie Mac issued a policy bulletin (2012-2), which allows unemployed borrowers to seek forbearance on their mortgages for a period of six to twelve months. The Federal Housing Administration (FHA) offers a similar program. Freddie Mac has also extended authority to lenders it works with to offer up to six months of mortgage forbearance as part of this program. CAI expects Fannie Mae to follow Freddie's lead on this issue.
Community associations should remind residents that loan forbearance offered by FHA, Fannie Mae, Freddie Mac or on behalf of any lender does not apply to association assessments. CAI also encourages all associations to work with troubled borrowers to avoid any instance of assessment delinquencies and to preserve the ability of owners to remain in their units. Boards may want to consider adding this information to delinquency notices to ensure the board is aware of any residents who are in a forbearance program. Foreclosing on such owners may invite federal regulation of association enforcement powers.
Other plans for REO properties include the Federal Housing and Finance Agency's bulk sales to rental program. Under this program investors have been invited to bid on pools of properties owned by Fannie Mae, Freddie Mac and FHA. One condition of this program is that the properties be rented for at least a year after purchase. While this program will help clear out the backlog of REO properties clogging the market, it also creates potential problems for community associations. First, as condominium associations know, FHA limits the number of rental units to no more than 49 percent of an association. It also requires that no more than ten percent of any condominium association be owned by a single entity. Thus, a bulk sale may result in an association being disqualified from some federal mortgage programs. Beyond that concern, there is the issue of the bulk seller obtaining a sizeable ownership share or even a majority of units within the community. This will create a host of governance issues and impact the rights on existing owners.
There is good news as well. The Office of the Comptroller of the Currency (OCC) issued a policy bulletin outlining the responsibilities of lenders in foreclosure. That guidance (embodied in OCC Bulletin 2011-49) provided notice to lenders who foreclose that they are responsible for payment of community association assessments. CAI survey data indicates that more than three out of four REO properties do not pay required assessments. Thus the federal actions here will help force lenders to live up to their financial commitments.
As part of our ongoing Mortgage Matters program, CAI is working to protect homeowners in community associations and to ensure access to fair and affordable mortgage products for all current and potential community association residents. You can follow our work and share your thoughts at www.caimortgagematters.org and on Twitter at @CAIGPA. CAI will continue to monitor and participate in shaping changing federal housing policies to ensure the perspective of community associations is heard.
Meet the CFPB: January 2012
In 2010, Congress created the Consumer Financial Protection Bureau (CFPB) to serve as the nation's "cop on the beat" to protect consumers from harmful financial products. Officially opened for business on July 22, 2011, the CFPB is now responsible for enforcing most federal financial consumer protection laws.
CAI's members have a keen interest in the development of CFPB's rules and regulations that could affect community associations. As a new federal agency, the CFPB is still working to define its approach to protecting consumers from abusive financial products and helping to ensure consumers have the right information to choose the financial products and services that will best meet their needs. While the CFPB's authority extends from checking accounts to credit cards to payday loans, it also has significant authority over federal housing policy, mortgage lending standards and the home buying process.
CAI is following CFPB's actions on: the definition of qualified mortgage, the regulation of transfer fees, association assessments, the definition of real estate settlement fees, foreclosure prevention and mortgage servicing standards. As such, the CFPB has the potential to impact community associations and the companies that serve them.
As noted, the CFPB has special authority over mortgage lending standards and real estate closings. The Dodd Frank Act gave the CFPB the responsibility of enforcing the federal Truth in Lending Act (TILA), a powerful consumer protection law. As the federal enforcer of TILA, the CFPB will establish and enforce mortgage lending standards that all lenders and housing market participants must follow.
Congress also transferred rulemaking and enforcement authority under the Real Estate Settlement Procedures Act from the Department of Housing and Urban Development to the CFPB. The bureau is in the process of updating real estate closing disclosures and real estate closing forms.
This combination of authorities means the CFPB sets the standards that govern almost every aspect of the mortgage lending and closing process.
CFPB is unique in that Congress granted the bureau the authority to expand firms under its supervision by regulation. Given the role of community associations in our nation's housing markets and the authority of associations to foreclose as a remedy to perfect a lien, it is reasonable to expect the CFPB to examine community associations at some point in its review of the housing market.
The CFPB has three ongoing initiatives that can affect how community associations function.
Ability-to-Repay
The first initiative is the CFPB's work on how association assessments factor into a borrower's mortgage payment. Under the Dodd Frank Act, all lenders must verify a borrower can afford all payments associated with a mortgage loan, including association assessments. It is the CFPB's job to write the rules to govern this process, which could include requiring associations to forecast assessment increases and the likelihood of future special assessments.
Transfer Fees
The second initiative CAI is monitoring is the CFPB's review of transfer fees in community associations. While the bureau has not signaled that it intends to restrict mortgages in associations with a transfer fee, it is studying the use of transfer fees.
Mortgage Complaint Portal
An important new consumer protection developed by the CFPB is an easy-to-use website for homeowners to report mortgage fraud, abusive lending practices and housing discrimination. This will significantly improve consumer protection for homeowners and allow the CFPB to keep track of new mortgage products or any new market abuses. The website will also be a means for disgruntled residents to air complaints against associations. As the CFPB has announced its future rulemakings will be influenced by the nature of complaints it receives through this system, associations should be prepared to respond to CFPB inquiries and work cooperatively with the bureau in resolving legitimate consumer and homeowner complaints.
Because of its potential impact on community associations, CAI has added the CFPB to our Mortgage Matters program. CAI is working to protect homeowners in community associations and to ensure access to fair and affordable mortgage products for all current and potential community association residents. You can follow our work and share your thoughts at http://www.caimortgagematters.org/.
More Housing Uncertainty in 2012: December 2011
CAI members know that 2011 saw the beginning of the federal government's effort to rebuild our mortgage finance system in the wake of the worst housing and economic crisis since the Great Depression. As Congress and a host of federal agencies worked through this process, hundreds of pages of proposed regulations were drafted and issued for public comment and analysis. From new Federal Housing Administration (FHA) condominium lending guidelines, to pending regulations on Qualified Residential Mortgages (QRM), to Qualified Mortgages (QM) and to the Federal Housing Finance Administration's transfer fee rule, tomorrow's mortgage market began to take shape. As we move into 2012, this process will enter a critical final phase and may trigger another round of uncertainty and confusion in the housing markets.
First, in early 2012, CAI expects the federal government to release the final draft regulations on QRM and QM. QRM regulations deal with the structure of mortgages and QM deals with qualification criteria for future borrowers. As drafted, both present a set of challenges to the housing markets in general and to community associations in particular.
As reported by CAI, the pending QRM proposal would have a significant impact on potential buyers. New requirements would mandate minimum down payments of 20 percent prevent financing of closing costs and realtor fees and would disqualify buyers with just one late payment on any installment account. It is estimated that 70 percent of currently qualified borrowers would not meet this standard. While it is expected that the QRM draft will be significantly revised, the ongoing uncertainty hangs like a dark cloud on the horizon.
Revised draft QM regulations will also be released in 2012. These regulations focus on a borrower's ability to repay a mortgage and contain provisions that include community association related expenses. On the positive side, QM will require that a lender qualify a borrower not just on the mortgage amount, but also on other mandatory fees like association assessments. This should help reduce assessment delinquencies. On the downside, QM requirements may also take action on association transfer fees and require the inclusion of special assessments in the qualification calculation on the basis that the assessment will be in place for the life of the loan.
Finally, in response to CAI members' ongoing pressure, FHA will be making additional changes to its condominium insurance guidelines. FHA has indicated that they will be issuing additional guidance to address issues with project certifications, transfer fees and management company fidelity bonding. This is good news for CAI members as FHA accounts for up to one-third of all condominium loans. On the downside, due to a pull back in bank lending and the insolvency of Fannie Mae and Freddie Mac, FHA has been forced to fill the vacuum in the mortgage market. This has stressed the agency and pushed its financial reserves to dangerously low levels. If the economy stumbles and FHA's reserves tip into the red, the agency could need a congressional bailout. With the heated political climate super-charged by election year politics, any solvency issues with FHA would likely set of a firestorm that could sideline the critical lending role FHA is now playing.
There is one point we can be sure of among all this uncertainty and that is that CAI will be working to make sure that CAI members voices are heard in this debate.
As part of our ongoing Mortgage Matters Program, CAI is working to protect homeowners in community associations and to ensure access to fair and affordable mortgage products for all current and potential community association residents. You can follow our work and share your thoughts at http://www.caimortgagematters.org/.
Federal Housing Administration's (FHA) Condominium Guidelines: November 2011
The ever-changing FHA Condominium Guidelines continued to create problems for many CAI members in 2011. Despite the challenges, CAI was able to work with FHA to amend some of the FHA lending criteria even as FHA released new policy that created new obstacles for condominium associations.
In June of 2011, FHA issued major revisions to the Condominium Guidelines, which, according to FHA, would address concerns raised by CAI. While the new guidelines added some flexibility on assessment delinquencies, commercial space and rental restrictions, it also imposed new and troubling criteria on fidelity insurance, project certifications and assessment delinquency calculations.
After the release of the new Guidelines in June, CAI worked with our members to escalate our efforts to persuade FHA to engage in a more rational and transparent process in developing condominium guidelines. First, CAI sent a letter summarizing concerns about the new Guidelines to the FHA commissioner. CAI noted that the requirements FHA imposed on fidelity insurance and project certifications were in conflict with many state laws and with the best practices of condominium associations. CAI also chided FHA for putting the burden of collecting assessments from bank-owned properties on association boards rather than on the banks that get a subsidy from FHA under the condominium loan program. CAI also filed an administrative challenge against the new Guidelines, arguing that FHA failed to do minimal due diligence when drafting the new requirements. Then, working with our state Legislative Action Committees, we took our concerns directly to members of Congress in August. Additionally, when FHA announced during a public training session that it would be looking at the issue of deed-based transfer fees, CAI sent a strongly worded letter urging it to engage in outreach and research before taking any unilateral action.
The arrival of fall saw the return on the investment in our Congressional Outreach. First, FHA backed away from their costly and duplicative management company fidelity bonding mandate. This was followed a few weeks later by key members of Congress and the Senate sending letters critical of the FHA Guidelines and the lack of transparency in their development. It is through these efforts that CAI will continue to move FHA policy to more rational and fair criteria.
As the year end approaches, FHA's financial position showed significant deterioration, with the organization well below its statutorily-mandated reserve requirements. There were whispers in Washington of a pending bailout, which would be bad news for potential condominium buyers as FHA continues to be the pre-eminent lender for condominium mortgages. This also will likely make CAI's task for pushing for reforms of FHA lending criteria even more challenging. At the close of 2011, it looks as if 2012 will be yet another year filled with challenges on the mortgage front.
As part of our ongoing Mortgage Matters Program, CAI is working to protect homeowners in community associations and to ensure access to fair and affordable mortgage products for all current and potential community association residents. You can follow our work and share your thoughts at http://www.caimortgagematters.org/.
Progress Report October 2011
The challenges presented by the wave of federal regulatory proposals that are reshaping the mortgage finance system made the summer of 2011 one of the busiest advocacy periods in the history of CAI. At stake is the health and marketability of the more than 24 million homes in community associations. CAI and our members, working through our Mortgage Matters Program, have been focused on three critical regulatory proposals; a proposed federal rule on transfer fees, Federal Housing Administration (FHA) condominium mortgage guidelines and Qualified Residential Mortgage Regulations. Each of these proposals as initially drafted had the potential to negatively impact community associations. To make matters more challenging, the financial reform process triggered more than 200 regulatory drafting exercises by a host of federal agencies on topics that include banking, insurance, hedge funds, mortgages, auto loans, credit cards and other financial services. In this flood of new regulations, it is difficult for any single industry to get their message through to lawmakers, but thanks to the work of CAI, our members and our allies, we have been making headway in shaping this important debate.
FHFA Transfer Fee Guidance:
In late 2010 the Federal Housing Finance Agency (FHFA) issued a proposal that would have banned federally backed mortgages to any property in a community association with a deed-based transfer fee. Such fees are a common funding mechanism for community associations with up to 49 percent of associations using such fees to fund reserves, capital accounts or operations. If enacted as drafted, up to 11 million homes in community associations would have been unable to obtain mortgages. Thanks to an incredible effort by CAI members, the FHFA backed down from its initial proposal and issued a revised draft regulation that specifically excludes community deed-based transfer fees from the mortgage ban. The revised draft regulation is still pending, but FHFA's retreat on the deed-based transfer fees put CAI on the map as a major player in the mortgage reform debate.
FHA Condominium Guidelines:
FHA issued new guidance in July in an effort to correct problems created by previous guidance on condominium requirements for FHA mortgages. FHA addressed longstanding issues raised by CAI such as allowing associations to impose rental restrictions, allowing for affordable housing units and added some flexibility for delinquencies. However, rather than completely fixing the issues with the program the new guidelines created a new set of challenges for condominium buyers seeking access to the more than thirty percent of all condominium mortgages FHA currently provides. Among the issues created by the new FHA requirements are:
· A costly fidelity bonding insurance for management companies, which is commercially impractical and in conflict with some state laws;
· A requirement that the submitter to FHA agree to keep FHA abreast of any conflict in the community and to assure FHA that a board will not take any action that might impact a borrowers ability to pay their mortgage;
· Inclusion of bank-owned properties in the assessment delinquency calculation; and
· An announcement that FHA will not approve any condominium project with a deed-based transfer fee, despite the Federal Housing Finance Agency's findings (noted above) that such fees benefit communities and homeowners.
Stepping up the pressure on FHA to engage in a more transparent rule making process, CAI members in key states set up Mortgage Matters Teams and met with members of the House Financial Services Committee and the Senate Banking Committee during the month of August. This grassroots activity is beginning to pay dividends; FHA has already backed down from the manager bonding requirements and is now indicating it may back off its current position on deed-based transfer fees. Although progress with FHA has been slow, it is adopting the policy positions advocated by CAI and our housing allies. Now that the debate is favoring CAI and our members, we will continue to step up our pressure on FHA and Congress to more quickly resolve the issues FHA is needlessly creating in the condominium market.
Mortgage Regulations (QRM/QM):
In August, CAI submitted more than 200 pages of comments to federal regulators on proposals to tighten mortgage lending standards and reshape commercial mortgage products. Working with a coalition of housing interests that include the National Association of Realtors, the National Association of Homebuilders and consumer groups, CAI denounced the stringent proposals that would have set mortgage standards so high as to exclude up to 70% of current borrowers. CAI praised a proposal that would require a lender to factor in association assessments in the loan qualification process as such fees are mandatory. However, CAI was critical of the proposal which would have required the lender to assume that any special assessment in place at the time of the loan qualification determination would continue for the life of the mortgage. The comment period on these regulations closed in August and revised regulations are expected to be released in late 2011 or the first quarter of 2012.
As we fight for our members, we will work to build new avenues of communication between CAI members, federal regulators and key members of Congress. Our success depends on the ability of every CAI member to respond to calls to action to make sure that our members can get access to fair and affordable mortgage products. The market is a fickle place, and any regulation or law that creates added costs or barriers for purchasing in a community association could result in a shift away from the community association model of housing which has dominated the markets for the last 30 years. Such a result would harm all CAI members. The good news is that we have demonstrated that when we make our voices heard, we can shape the debate and achieve positive results in the face of big challenges.
As part of our ongoing Mortgage Matters Program, CAI is working to protect homeowners in community associations and to ensure access to fair and affordable mortgage products for all current and potential community association residents. You can follow our work and share your thoughts at www.caimortgagematters.org.
FHA Reignites Transfer Fee Battle: September 2011
The Federal Housing Administration (FHA) has announced its plans to disqualify condominium associations from FHA financing if the association charges a deed-based transfer fee at time of sale. This would put FHA at odds with the Federal Housing Finance Agency (FHFA), which earlier this year determined that such fees benefit community associations and do not impact the sale of community association properties. It marks yet another unilateral action by FHA, without public notice or input that will have a detrimental effect on the condominium market. Worse, FHA conducted no formal release of this pending requirement, but rather mentioned it as part of a training session on the new requirements imposed by FHA in its June 30 Mortgagee Letter.
Our members may recall the fierce, and successful, battle waged by CAI against FHFA on community association transfer fees earlier this year. In late 2010, FHFA proposed a draft regulation which would have cut off all federally backed mortgages to community associations with deed-based transfer fees. A CAI national survey found that forty-nine percent of all community associations have a deed-based transfer fee. These community transfer fees are levied at the time of sale to fund reserves, capital projects or operations. The fees are typically less than $500 and are calculated as a percentage of sale price, a fixed fee or a multiple of monthly assessments. The challenge is that such fees are incorporated into the deed restrictions of the community association which typically requires a two-thirds majority of all property owners to change. FHFA sought input from the public at large and received more than 4,000 comments on their proposal. Based on the information received, FHFA revised their regulation to allow community association levied fees.
FHA has indicated that they will issue a Mortgagee Letter later this year which would disqualify condominium associations from FHA backed mortgages if they had a deed-based transfer fee in place. Unlike FHFA, FHA does not intend to solicit public input on this proposal nor do they find the information gathered by the FHFA on the same topic to be relevant to their decision. Unfortunately, this is business as usual for FHA which continues to issue requirements for its condominium mortgage insurance program without the benefit of input from the public at large. For those who have worked to get FHA approval, this has resulted in FHA requirements that have proven confusing and problematic for associations. In a statement submitted to the House Financial Services Committee on an FHA hearing, CAI noted that FHA's lack of stakeholder input "has resulted in underwriting criteria for condominium associations that do not comport with common association business operations, state law or common sense."
In August, CAI members from key state legislative action committees met with members of the House Financial Services Committee to let them know the problems FHA is creating in the condominium marketplace by setting qualification criteria for condominium associations that conflict with association operations, state law or simply do not make rational sense. CAI continues to expand our grassroots efforts to force FHA to engage in a more transparent process in developing criteria for condominium mortgages. As FHA currently accounts for one in three condominium loans, getting the rules right is key to restoring confidence to the marketplace. Despite our progress on a variety of mortgage issues, FHA continues to be a needless source of confusion and frustration for condominium associations.
As part of our ongoing Mortgage Matters program, CAI is working to protect homeowners in community associations and to ensure access to fair and affordable mortgage products for all current and potential community association residents. You can follow our work and share your thoughts at www.caimortgagematters.org. CAI will continue to monitor and participate in shaping the development of the FHA's condominium underwriting guidelines to ensure that the perspective of community associations is heard. If you have any questions about the FHA's underwriting criteria and how it could affect your community, e-mail with FHA Mortgage Insurance Requirements in the subject line.
2011 08 Mortgage Matters - The Waiting Game
2011 07 Mortgage Matters - CAI Message to Congress: "Mortgages Matter!"
2011 06 Mortgage Matters - FHA Condo Rules to Change (Again)
2011 05 Mortgage Matters - Feds Move in the Right Direction on Transfer Fees
2011 04 Mortgage Matters - CAI Mortgage Matters is a hub for information on how the rules
governing mortgages are changing...
|
