The Washington Report

In This Issue
Realtor Insider DC News and Events Report
NAR Calls for Changes to Condominium Rules for GSE and FHA Mortgages
NAR Submits Comments on Proposed Bank Capital Rules

Conventional Residential Lending Report
NAR Meets with FHFA Director Jim Lockhart

Housing Report
HUD Unveils HECM for Purchase Program

NAR Calls for Changes to Condominium Rules for GSE and FHA Mortgages

On October 28, 2008, the National Association of REALTORS� President Dick Gaylord sent letters to US Department of Housing and Urban Development (HUD) Secretary Steven C. Preston and the James B. Lockhart III, Director of the Federal Housing Finance Administration (FHFA) to request reform of the owner-occupancy rules for condominiums. In particular, NAR is requesting that the 51 percent owner-occupancy requirement be reduced slightly. The letters also request that REO properties not be counted in calculating the owner-occupancy ratio. Under existing rules, REO properties are counted as not-owner occupied making it difficult for some condominium developments to meet 51 percent threshold for owner-occupancy. GSE and FHA loans are not an option for buyers interested in these developments. Since buyers have few other mortgage options this can put a condominium development in peril.

Reducing the 51 percent occupancy ratio for GSE and FHA mortgages to a number below 50 percent will allow more buyers to purchase units in condominium developments that have vacant units as a result of bank foreclosures. Temporarily suspending the rules so bank-owned REO properties are no longer counted for the purpose of calculating occupancy ratios will help developments with significant percentages of REO properties. The modifications requested by NAR will help lenders sell foreclosed properties, give homebuyers access to more fair and affordable financing options and a wider choice of condominium developments, and benefit existing owners of units in condominium developments as owner-occupancy rates increase.

Letter to Secretary Preston on Condominium Owner-Occupancy Rule
Letter to Director Lockhart on Condominium Owner-Occupancy Rule

Jerome Nagy 202-383-1233, Jeff Lischer 202-383-1117, Megan Booth 202-383-1222

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NAR Submits Comments on Proposed Bank Capital Rules

On October 27, 2008, NAR President Dick Gaylord sent letters to the four federal bank regulators, commenting on a proposed capital framework--called the Standardized Framework--that would be available as an option for all banks, except for the largest banks that are required to use the Basel II Advanced Approach. The purpose of the proposed rule is to provide for a more risk-sensitive capital framework for the vast majority of banks.

NAR supports the objectives of the proposed rule and believes that in general it will better align capital and economic risk. However, NAR recommends various changes to ensure that the rule will further the interests of the U.S. economy, especially the flow of funds for mortgage lending and commercial real estate, consistent with bank safety and soundness.

NAR's Comment Letter

Jeff Lischer 202-383-1117, Lisa Brechtel 202-383-1090, Tony Hutchinson 202-383-1120

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NAR Meets with FHFA Director Jim Lockhart

On October 31, 2008, NAR's Chief Executive Officer Dale Stinton and other NAR staff met with the Director of the Federal Housing Finance Agency (FHFA), Jim Lockhart. Director Lockhart is the conservator of Fannie Mae and Freddie Mac, the government sponsored enterprises (GSEs).

In the meeting, NAR discussed high profile issues with the Director, including (a) NAR's proposals to make the $7,500 tax credit nonrepayable and available to all buyers and to make the 2008 conforming loan limits permanent, (b) the need to bring down mortgage interest rates, (c) getting the "bail out" program back on track to help average Americans, (d) the condition of the housing market, (e) NAR concerns about GSE underwriting standards (including the 4-unit cap on investor loans, the proposal to reform the owner-occupany rules for condominium developments, and the stricter rules for high cost area mortgages, and (f) problems with short sales and GSE-owned properties.

Director Lockhart will be speaking in Orlando on Friday, November 7, from 10:30-noon (Convention Center, Room W414D, Level IV).

Jeff Lischer 202-383-1117, Tony Hutchinson 202-383-1120

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HUD Unveils HECM for Purchase Program

This week the US Department of Housing and Urban Development (HUD) unveiled the Federal Housing Administration (FHA) Home Equity Conversion Mortgage (HECM) for Purchase Program. HECMs, commonly referred to as reverse mortgages, were approved for use to purchase a new principal residence in the Housing and Economic Recovery Act of 2008. In the HECM for Purchase program title of the property that is to be occupied as principal residence is transferred to the buyer. At closing, the HECM first and second liens will be the only liens against the property. Cooperative units, boarding houses, bed and breakfast establishments, and certain existing manufactured homes are not eligible for this program.

Buyers are required to have cash in hand or cash from the liquidation of assets for the required monetary investment. Loan fees paid by the purchaser may be used as part of the required cash investment. At closing, borrowers may be required to provide an additional monetary investment to satisfy any difference between the HECM principal mortgage limit and the sales price of the property. Gap financing, or bridge loans, may not be used to meet the monetary investment requirement or to pay any closing costs associated with the transaction.

Buyers are warned against being coerced into property flipping schemes or purchasing distressed homes in need of substantial repairs but sold at or above market rates. Lenders must take steps to ensure that only current owners sell properties that will be financed with FHA-insured mortgages. Resale of a property may not occur in 90 days or less from the last sale date. Resales that occur between 90 and 180 days where the new sale price exceeds 100 percent of the previous sales price will require additional documentation validating the property value. HUD-approved counseling agencies are available to provide reverse mortgage counseling.

HECM for Purchase Program HUD Mortgagee Letter 2008-33

Jerome Nagy 202-383-1233, Megan Booth 202-383-1222

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Last Updated: 10/31/2008 Bira de Aquino