With the November mid-term elections around the corner, it is important to remember that there are still a number of issues that Congress has to address. While Congress will return for a lame duck session after the election, the issues they will debate remain unknown. Some key issues that impact the business of real estate that Congress needs to address are highlighted below.
3-Percent Cap of Fees and Points
H.R. 3211 and S. 1577, “The Mortgage Choice Act,” are a bipartisan compromise that reduces discrimination against mortgage firms with affiliates in the calculation of fees and points in the Dodd-Frank Ability to Repay/Qualified Mortgage (QM) rule. A key requirement of this rule is that points and fees for a QM may not exceed 3 percent of the loan amount. The problem arises that under current law and rules, what constitutes a “fee” or a “point” varies greatly depending upon who is making the loan and what arrangements are made by consumers to obtain closing services. As a result of these definitions, many loan originators affiliated with other settlement service providers are not able to make QM loans to a significant segment of otherwise qualified borrowers. In June, the House of Representatives passed H.R. 3211, and it is critical that the Senate acts.
Mortgage Debt Cancellation Relief
This provision of the tax code, which expired at the end of 2013, waives income tax on mortgage debt forgiven in a short sale or a workout for principal residences. If distressed homeowners have to pay tax on “phantom income” from forgiven debt, many will not go through with short sales or workouts and will go into foreclosure. Representatives Tom Reed (R-NY) and Charlie Rangel (D-NY) have introduced H.R. 2994 to extend the provision for one year, and Senator Debbie Stabenow (D-MI) introduced S. 1187, which would extend relief for two years. NAR encourages Congress to extend the provision retroactively for 2014 and also prospectively to include at the very least, 2015.
Terrorism Risk Insurance Act or “TRIA”
Terrorism risk insurance is critical to securing financing in commercial real estate; without it, property values may drop and construction and development may stall. Following the September 11, 2001 terrorist attacks, the challenges in underwriting the risks of claims resulting from acts of terrorism were magnified, and private insurers backed out of covering losses due to the difficulties with modeling for terrorist events, as they are man-made and specifically designed to be unpredictable and cause immense damage. The federal backstop set up by TRIA has, for the past 12 years, ensured that terrorism risk insurance is widely available and affordable at virtually no cost to taxpayers. In July, the Senate approved S. 2244, “The Terrorism Risk Insurance Program Reauthorization Act of 2014,” by a vote of 93-4. In June, the House Financial Services Committee marked up H.R. 4871, “The TRIA Reform Act of 2014,” and it was approved by a party-line vote of 32-27. It is important that lawmakers act quickly, as this act will expire at the end of 2014.
On the regulatory side, preparation for implementing the RESPA/TILA rule in August 2015 still requires a lot of work. It has become somewhat of an industry consensus that there is a need for more written guidance for a broad range of Dodd-Frank rules. Without written guidance, and perhaps written guidance that clearly has the force of law, we are unlikely to see much liberalization in access to credit and on other issues related to the Dodd-Frank rule.
There is much for Congress to do before the year ends and there is still work ahead for CFPB, HUD and other agencies. NAR continues to press on all fronts for progress on these myriad issues and will do so for the rest of the year and into 2015 regardless of the outcome of the November election.
This column is brought to you by the NAR Real Estate Services group.
Ken Trepeta is the director of Real Estate Services for the National Association of REALTORS®.
For more information, visit www.realtor.org.