How and Why Washington Affects the Real Estate Industry NAR’s Real Estate Broker Conference Conventional Finance Policy Committee

How and Why Washington

Affects the

Real Estate Industry

NAR’s Real Estate Broker Conference

Conventional Finance Policy Committee

Bulk Sales REO and Notes: What are the details and impact?

Eminent Domain and Mortgages: What can REALTORS® do?

Short Sales: Then and Now

Bringing Back Private Capital: Starts with Policy

SHORT SALES THENIn the beginning there was short sale…

• Seller paid taxes on loss of equity.

• Average closing time 18+ months

• Lack of training for Brokers winging it

• No uniform structure i.e. several different models to comprehend

• No singular vehicle of communication

• Paperwork often lost or new negotiator and had to start over

NOWToday there is a short sale and counting…

• Mortgage Forgiveness Debt Relief Act 2007

• Average closing time 6+ months

• NAR SFR program and a desired designation with banks and GSE’s

• Change in policy with regards to timing more accountability

• Platforms developed to monitor progress and store all documentation.

NAR ACTION on SHORT SALES EngagementMembers have been engaged at every level by actively documenting issues with short sales either with banks, asset managers, appraisers and also the issues home owners face separate from the transaction. NAR also created the SFR designation to provide members education and the public a means to hire an expert.

ActionNAR pushed and held several forums and held meetings with major banks, FANNIE MAE & FREDDIE MAC to discuss streamlining and better policies to ensure some uniformity on the regulatory side.

ImpactSFR is the preferred designation and short sales though not completely uniformed there is a consistency on the regulatory side especially with the GSEs. Banking will have its own business platform and will commit to the regulatory changes. More deals are getting done and constant member feedback and documentation continues to help this process evolve.

Bringing Back PRIVATE CAPITAL

Chris Read *NAR Presentation, November 2012

• Issue: – Implicit v. Explicit Guarantee for Fannie & Freddie– Conservatorship: Private Profit – Public Loss– How can the Private Investor compete?

Solution:Provide a self-sufficient mechanism whereby safe, sound,

transparent, and insured Mortgage Backed Securities (MBS) may be packaged and sold.

“Mandatory Elementsfor the Return of Private Capital to the Residential

Marketplace”

(Appendix)

GUARANTEE

POOLING SERVICE AGREEMENTS

LOAN LEVEL DATA

STANDARDIZED UNDERWRITING


LOAN LEVEL DATA

• Issue: – Investors price products based on data– Incorrect and inadequate data leads to reliance on

ratings and continued lack of confidence


• Solution:

Solid, properly structured loan level data is the foundation needed

Investors want to be empowered and enabled to conduct their own risk analysis

LOAN LEVEL DATA


Standardized data: real time, accurate and transparent

Data: Underwriting Attributes, Loan Performance Attributes, Collateral and Underwriter/Originator Attributes

Risk Ratings: continuous and based on real time performance

Availability in electronic, manageable industry standards; immediate and continuous risk analysis

NAR ACTION on Bringing Back PRIVATE CAPITAL

EngagementNAR met with members of the financial services committee as a way to start dialogue about GSE Reform, Regulatory enhancements, and ensuring affordable and realistic mortgage options are available.

ActionOver 11,000 members visited with their members of Congress in May 2013 to educate them and get a commitment from them regarding GSE Reform, discuss the QRM (Qualified Residential Mortgage) down payment provision and ensuring affordable mortgage products are available.

ImpactREALTORS are seeing increased activity and profitability. QM (Qualified Mortgage) has been dramatically changed to ensure a flow of capital. Respectively QRM (Qualified Residential Mortgage) previously had a provision 20% down payment and currently it does not. Members of Congress and the CFPB (Consumer Financial Protection Bureau work with NAR to ensure a healthy market continues.

PATH Act & Corker/Warner

Corker/Warner• Set up a National Mortgage Market Utility as a nonprofit platform that

develops standards for servicing, pooling, and securitizing residential mortgage loans, as well as serves as a repository for mortgage data

PATH Act• Establishes the FHA as an independent agency and creates the

organizational structure of the new agency as an independent government corporation that is fully self-sufficient.

All very familiar with NAR policy points… Corker/Warner a more realistic bill the PATH Act is a mix of good and a lot of bad reviews

What they say…

REO BULK SALESFLORIDAPacifica

699

ILLINOISCogsville

94

CALIFORNIAColony

970

FHFA total to date

1763

TRANSACTION HIGHLIGHTS

• Create New LLC to transfer properties occupied and vacant

• Managing members Pacifica, Cogsville and Colony receive 10% of distributions to LLC and 20% asset management fee from gross rents for the equity interest purchased

• Upfront funding by Fannie Mae of Working Capital Reserve and Replacement Reserve

• Fannie Mae receives 90% of distributions to LLC then shifts to 50% if certain yield and cashflow thresholds met

• None to limited properties can be sold within 3 year period

• Transaction timeline 1 year to close

FHFA planned for 2,500 properties in the initial pilot. Atlanta, GA still on the table

Mabel Guzman *NAR Presentation, November 2012

REALTORS® REO SALESTRANSACTION HIGHLIGHTS

• LLC’s are created as needed or currently exist

• Asset management fees are only for the duration the property is active and under contract. REALTORS® provide property management as a value add

• Funding for repairs on an as needed basis and only during listing period until closing

• No waiting, Fannie Mae receives funds whether cash or financed at closing.

• Some deed restrictions for Buyer up to 3 months

• Transaction timeline 30 to 90 days depending on financing. Fannie is out of the deal there after.

REALTORS® closed 141 times more REO properties within same time period of

Bulk Sales

250000

1763

REALTORS®FHFA


REO BULK SALES Impact

HR 5823 “Saving Taxpayers from Unnecessary GSE Bulk

Sale Program Act of 2012”Sponsored by Congressman Gary Miller of

California

Ceases FHFA of doing more Bulk Sales and recommends for properties to be rented for a 5 year period. The legislation is a reaction to the

lack of inventory in California

Additionally, Fannie Mae has stopped using outsourcers for their REO properties and

working directly with REALTORS®; REO Inventory levels are at the lowest since 2009

Other states, metro markets and sub markets experiencing a shortage of supply


BULK NOTE SALES Enhance Note Sales Program

Highlights

• HUD started pilot program 2010

• 2,100 Notes in the single family program sold since 2010

• Foreclosure process delayed by six months

• Renaming to “Distressed Asset Stabilization Program”

• Borrower receives direct help from servicer

Enhancements

• Focusing on Delinquent Loans vs. Foreclosure; currently all time high of delinquent loans and Foreclosures lowest level

• Ramp up Note Sales from 1,800 annually to 5,000 per quarter

• Working on solutions for distressed mortgages instead vacant properties

• Mitigate negative impact of foreclosures on “Communities”

• Two Pools Types; Standard National Pools and Neighborhood Stabilization Pools


BULK NOTE SALES Citigroup Note Sale of $158 million to Carrington Holding Co. and Oaktree Capital Group

Transaction Details

• Approximately 500 delinquent loans with average balance of $316,000-

• Borrower’s offered modifications or principal write down, prior to giving up title to rent back home

• Three year rental agreement for eligible borrowers; must be behind 120+ days to be eligible

• Rental program being tested in six markets; Arizona, California, Florida, Georgia, Nevada •and Texas

Bank of America offered a rent back program to delinquent borrowers in

March 2012

1,000 borrowers in pilot from Arizona, Nevada and New York

Those eligible give title to bank and debt forgiven

They can rent for up to three years


NAR ACTION on BULK SALES EngagementNAR created an REO sub-group to review such sales and discuss issues of capacity, competition, expertise of said groups and impact on municipalities/communities, home owners and members

ActionNAR with member feedback has been monitoring these sales and meeting with key stakeholders to ensure there are rules in place to work with home owners and additionally request capacity plans to establish these companies have the means to organize and run at such high levels

ImpactBased on results REO Bulk Sales have ebbed from the GSE’s and banking. Return on investment for distressed assets is generally higher when listed with a REALTOR. Bulk Notes Sales will still continue and with some guarantees that home owners will have an opportunity to have their mortgages modified.

EMINENT DOMAIN and Under Water Mortgages

Bad News is… Several Cities are considering this use and they are…Seattle, WANewark, NJIrvington, NJEl Monte, CANorth Las Vegas, NV

Good News there is opposition!

The City of Chicago Firmly opposed this measure and any use of eminent domain to usurp any agreements between borrower and financial institutions. Also, San Bernadino, CA.

EMINENT DOMAIN and Under Water Mortgages

Worst News…

Richmond, CA Passed it!!

MRP, Mortgage Resolution Partners the beneficiaries call the

program “CARES”

Community Action to Restore Equity and Stability

NAR POSITION & ACTION on Eminent Domain

ENGAGEMENT:NAR has partnered with the following:

• American Bankers Association• American Land Title Association• American Securitization Forum• Association of Mortgage Investors• Financial Services Roundtable• Housing Policy Council• Independent Community Bankers of America• Investment Company Institute• Mortgage Bankers Association• National Association of Federal Credit Unions• National Association of Home Builders• Securities Industry and Financial Markets

Association

ACTION:NAR has shown support to State Associations with funds for the legal battle to educate public. Additionally, they have urged members of U.S. House of Representatives to support an amendment to prohibit FHA from insuring seized mortgages

IMPACT:Up to you…

NAR/REALTOR WINS!!The GROUND GAME

ISSUE:Missouri Legislators seeking new sources of revenue decided to tax every time a property is transferred.

ENGAGEMENT and ACTION:The Missouri Association of REALTORS started a grass roots campaign to get 157,000- signatures to place an amendment on the ballot for 2010 general election.

IMPACT:MAR not only collected 157,000- signatures. They educated the public and voters overwhelmingly by 83% voted against this measure. Missouri has a BAN on this act of double taxation.

ISSUE:The State Fire Marshall wanted to do a change to the Illinois fire safety code.

ENGAGEMENT and ACTION:The Illinois Association of REALTORS reached out to members that are key contacts to legislators to call their representatives and make it clear to say NO and not support the Fire Marshall, in addition created a “Call to Action”

IMPACT:IAR members pressured legislators and in turn the Fire Marshall withdrew his proposal.

Any Questions

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Documents

How and Why Washington Affects the Real Estate Industry NAR’s Real Estate Broker Conference Conventional Finance Policy Committee