By anchoring communities, providing jobs and building family wealth, the real estate finance industry has played an important role in bringing prosperity to American families. Recent turmoil in the industry and the markets has, however, threatened this critical responsibility. The Mortgage Bankers Association is eager to work closely with the 111th Congress and the Obama administration to help rebuild and justify the faith in our industry by restoring liquidity to the capital markets, assisting borrowers and renters and preventing reoccurrences of the recent troubles. In 2009, MBA will advocate for the following policy issues.
Restoring liquidity
Permanently increase conforming loan limits
To help stimulate the mortgage market and increase lending to
consumers, the standard conforming loan limit for single-family
properties should be increased from $417,000 to $625,500 and the
limit in high-cost areas should remain at the level established by
the Economic Stimulus Act of 2008 (125 percent of the median home
price for high-cost areas up to $729,750.)
Use tax incentives to reduce real estate
Inventory and Stimulate the Economy There is an extremely large
inventory of vacant properties on the market today. Tax incentives
could encourage reluctant homebuyers to enter the market and
individuals to rent vacant homes. The first-time homebuyer tax
credit should be expanded to all homebuyers, increased, made
available at closing and made more potent in other ways.
Depreciation of single family rental properties should be
accelerated to help convert vacant homes into rental properties. A
variety of proposals will inject greater cash into the economy such
as allowing taxpayers who claim a standard deduction to deduct
their mortgage interest and targeting special tax credits to
critical regions.
Ensure a vibrant and liquid secondary market
MBA is committed to restoring vibrancy and liquidity to the
secondary market in a manner that avoids the shortcomings of the
current framework. Accordingly, MBA will work with Congress, the
administration and the industry at large to help design and
implement multiple liquidity channels that will accommodate a
variety of business models. In this way, the secondary market will
evolve to provide numerous credit resources that will minimize the
pro cyclicality that has exacerbated the current credit crisis. MBA
will also work with Congress and the administration to resolve the
status and structure of the government sponsored enterprises
(GSEs). Covered bonds, and enhanced Federal Home Loan Bank access
and liquidity powers are additional credit distribution channels
that MBA will seek to promote through legislative and regulatory
measures. MBA believes there must be enhanced clarity in the
assignment of responsibilities and obligations among all market
participants. Transparency and supervisory oversight must be
bolstered so that all market participants fully comprehend and
carry out their responsibilities and obligations. Additionally, the
role of the federal government must be explicitly articulated to
avoid any opportunism fostered by confusion about the government's
role.
Troubled Assets Relief Program (TARP)
MBA supports the work of Treasury to date but continues to
encourage TARP to purchase and modify troubled whole loans from
commercial and residential lenders and servicers, and to explore
other initiatives that would stabilize the market conditions for
residential mortgagebacked securities (RMBS) and commercial
mortgagebacked securities (CMBS).
Term Asset-Backed Securities Loan Facility (TALF)
TALF is a credit facility operated by the Federal Reserve that
currently is limited to the purchase of Asset-Backed Securities,
such as securities collateralized by credit cards, automobile
loans, etc. MBA supports the expansion of the TALF program to
stabilize CMBS and RMBS market conditions and help restore
liquidity to the capital markets.
Re-evaluate fair value accounting
Fair value accounting for mortgage-backed securities in inactive
markets compounds market crises by compelling institutions to mark
down the value of held assets to fire sale prices. This
pro-cyclical impact can be prevented if distressed sales
specifically are excluded from fair value assessments during
inactive markets and if fair value is based on projected future
cash flows using discount rates that do not reflect the liquidity
risk inherent in recent, distressed sales. The Securities Exchange
Commission should encourage the Financial Accounting Standards
Board (FASB) to issue clarifying guidance or suspend the current
rules toward this end. MBA recommends that the FASB re-evaluate its
fair value project to determine if a new model can be designed that
will meet investor needs for a "liquidation value" at balance sheet
date while allowing for valuation methods that reflect management's
current intentions to hold assets beyond the immediate future.
Stimulate the multifamily sector
To help restore activity to the multifamily housing sector that
provides affordable rental housing and construction jobs to
millions of Americans, the Federal Reserve should purchase
construction loan-backed Ginnie Mae securities at the same price as
the market prices for permanent loan multifamily MBS. In addition,
HUD should rapidly implement the provisions of HERA related to the
streamlining of HUD processes for low income housing tax credit
properties. Finally, a program should be developed within the
government to purchase (at a discounted interest rate) loans backed
by multifamily properties assisted by low income housing tax
credits.
Preserve current bankruptcy laws
Current bankruptcy laws were intended to help keep mortgage
interest rates low by prohibiting bankruptcy judges from altering
the terms of most residential mortgage contracts during Chapter 13
bankruptcy proceedings. Overturning these laws to allow bankruptcy
judges to unilaterally cramdown mortgages would draw more families
into bankruptcy and make it harder and more expensive for all
Americans to obtain mortgages by forcing lenders to impose tougher
lending standards, require larger down payments and raise interest
rates.
Assisting borrowers and renters
Implement a government-guaranteed refinance program
An effective borrower assistance program could overcome existing
obstacles to modification caused by the fiduciary or contractual
duties of MBS trustees/servicers to investors. The ideal program
would provide an outlet for performing and non-performing borrowers
whose loans are "underwater," but who have sufficient income to
afford their mortgages under reasonable rate/term/principal
scenarios. The government could use TARP funding or the $300
billion allocated to the Hope for Homeowners program to purchase
and hold whole loans, which would eliminate the bond feature and
need for FHA insurance.
Continue to focus assistance on no-contact
borrowers
Most foreclosures today fall into one of three categories:
1. Borrowers who bought the house as a speculative investment
and do not live in the house going into foreclosure;
2.Borrowers who have experienced a life-changing event that has
made a previously affordable mortgage unaffordable even if
modified; and
3. Borrowers who have had no contact at all with their servicer or
lender. Efforts such as the HOPE NOW Alliance that are focused on
this third group will have the most success.
Preserve and improve affordable rental housing
Many of the currently assisted multifamily properties that provide
affordable rental housing are in need of substantial rehabilitation
and could be lost to the affordable housing inventory at a time
when such housing is needed by an increasing number of families.
Congress should pass legislation that makes needed changes to
existing statutes and HUD regulations and procedures that would
facilitate rehabilitation of these properties and assure their
long-term affordability.
Preventing future problems
Pass mortgage reform legislation
Congress should pass comprehensive mortgage reform legislation that
will establish a single, nationwide consumer protection,
anti-predatory lending standard; empower consumers by fixing our
broken mortgage shopping and closing process; create a new federal
mortgage regulator; and better regulate mortgage brokers.
Ensure FHAs Future Viability Federal Housing Administration (FHA) programs have skyrocketed from being nearly irrelevant to the market two years ago to approaching half the single-family market and a significant share of the multifamily market today. FHA must be allowed to price its single-family premiums for risk and be given the financial resources and flexibility to hire the best people and use the best technology to monitor and manage its operational risk more effectively.
Strengthen financial education and mortgage
counseling
Existing programs should be harmonized and well-funded to improve
financial literacy and make help available to more consumers.
Consumer finance curriculum, including credit and mortgage basics,
should be required in every high school in America.
Preserve the current accounting rules regarding securitized
loans
MBA opposes proposed changes to current accounting rules
(FAS-140/FIN46R) that would prohibit off-balance sheet accounting
treatment for loans that have been transferred into a
securitization. The proposed change would require assets that had
been contributed to a securitization to be maintained on the
balance sheet of the contributing organization, despite the loss of
operational control and cash flow from the loan. MBA supports the
linked presentation accounting rule that would limit the balance
sheet exposure to the amount of securitization that is owned.
Real Estate Mortgage Investment Conduits (REMIC)
reform
MBA supports REMIC modernization for CMBS transactions to keep pace
with market conventions. There is currently a proposal pending with
the Internal Revenue Service that would benefit both the
bondholders and the property owners, by providing borrowers more
options and the flexibility to manage their properties after the
mortgages have been securitized. MBA and other real estate industry
organizations have commented on the proposed IRS regulations
suggesting revisions that would provide bright line, easily
administered tests that would simplify this area of law.
Preserve current tax treatment of carried
interest
In the case of real estate development, carried interest is a share
of the profits of a successful partnership that is paid to the
manager of a partnership as a form of incentive compensation.
Currently, carried interest for long-term investments is taxed at
the capital gains tax rate of 15 percent. MBA opposes legislation
that would increase carried interest taxation to the ordinary
income tax rate, a maximum of 35 percent, because it would greatly
reduce the financial incentive for partnerships to develop new and
purchase existing residential and commercial real estate
projects.
Maintain consistent credit ratings for all asset
classes
Some have proposed replacing or modifying the existing credit
ratings scale to create a unique rating system for structured
finance products, such as MBS. Requiring structured securities to
have a unique identifier would, however, create compliance burdens,
confusion and volatility in the market and potentially discourage
the purchase of all structured securities. MBA supports proposed
regulations that would increase ratings and data transparency and
information disclosure as an alternative to the unique structured
securities identifier proposal.
End mortgage fraud
Reported incidents of mortgage fraud in the U.S. increased by 45
percent in the second quarter of 2008 despite fewer loan
applications at the same time last year. We must remain vigilant in
fighting mortgage fraud, which hurts consumers, communities and
lenders alike, by adequately funding enforcement activities.
For more information, visit www.mortgagebankers.org.