2007 Legislative Outlook: Poised for Progress

March 1, 2007

Greg Herb, CRB, CRS®, wouldn’t be surprised if his business got just a little bit easier over the next 18 months and not just because he’s already seeing his market improve. It’s because the pieces are falling into place for Congress, after years of gridlock, to pass measures that could help the NATIONAL ASSOCIATION OF REALTORS® boost the number of home buyers in his market and, just as important, curtail the destabilizing presence of predatory lenders.

“The measures important to us as real estate professionals are the kind of bipartisan issues that lawmakers on both sides of the aisle say they want to pass,” says Herb, a past president of the Council of Real Estate Brokerage Managers and broker-owner of Herb Real Estate Inc. in Gilbertsville, Pa.

He isn’t the only person who thinks so. Herb and hundreds of other REALTORS® gathered in Washington, D.C., earlier this year to meet with members of Congress regarding NAR’s 2007 legislative agenda. Lawmakers said some legislation, including long-sought FHA modernization, has a good shot at passage this year because it’s attractive on a bipartisan basis.

Creating home owners

Lawmakers are looking to FHA modernization in part as an antidote to what many on Capitol Hill fear will be an escalating problem of defaults. Possibly millions of borrowers, many of them minority and low income, who took out subprime loans during the housing boom and are seeing the interest rate on their loans reset upward, face higher payments than they can afford.

For many of those borrowers, FHA-insured financing, with its solid underwriting standards, is a safer choice than subprime loans. But maximum loan amounts under FHA haven’t kept pace with rising home prices, especially in high-cost markets, so the program hasn’t been available to many borrowers.

NAR has called FHA modernization long overdue and has calculated that the Bush administration’s proposed reforms, which include raising loan limits and allowing flexible down payment amounts and risk-based mortgage insurance premium pricing, could create as many as 170,000 new home owners.

The reform measures passed the House overwhelmingly last year by a 415-7 vote but got snagged in the Senate because some lawmakers expressed concern about the impact the changes could have on private lenders.

However, with both parties looking for bipartisan victories this year, support could be widespread enough to overcome the concerns, NAR analysts say.

Curbing predators

Given the concerns over increasing foreclosure rates, chances of passing predatory lending curbs backed by NAR also look solid. But moving legislation through Congress most likely won’t get completed before 2008, NAR analysts say.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, is expected to introduce refinements this spring to the Home Ownership and Equity Protection Act, a landmark law enacted in 1994 to curtail risky loan practices, such as balloon payments on high rate, high fee loans.

Frank’s legislation is expected to extend some of those HOEPA restrictions to a greater range of loans, in part by lowering the minimum interest rate at which the restrictions are triggered.

That’s an approach REALTORS® could support, though how the details are fleshed out is important, NAR analysts say.

One of the potential issues is whether the federal protections will preempt state antipredatory lending laws, something that gives REALTORS® pause. NAR opposed rules promulgated three years ago by federal bank regulators because they preempted state real estate lending and banking laws for state incorporated subsidiaries of national banks.

Higher health insurance profile

More challenging will be legislation on one of NAR’s top priorities: closing the health insurance gap for its members.

Despite its success in getting small-business health plan legislation to the Senate floor last year, where it just missed coming up for an up or down vote, NAR faces a different environment for health plan reform.

Sen. Edward Kennedy, D-Mass., who chairs the committee with jurisdiction over the issue in his chamber, is expected to reshuffle the debate completely by introducing legislation that would try to close the health insurance gap for the full range of the uninsured, not just the slice of small-business people for whom NAR advocates.

At the same time, President Bush and Sen. Hillary Clinton, D-N.Y., have also developed health insurance initiatives, further changing the legislative environment.

Bush’s initiative would give a tax break to people who purchase their own insurance; Clinton’s would expand existing state children’s health insurance programs.

In the approach NAR touted last year, associations and groups of employees would be allowed to band together to negotiate favorable rates and terms with insurers, just as unions and corporations now do.

Because of the far reaching nature of some of those other plans, the health care debate could well drag into 2008, NAR analysts say.

What’s clear, though, is that NAR’s help in muscling health insurance to the Senate floor last year has earned REALTORS® a place at the table when legislation gets hammered out. NAR President Pat Vredevoogd Combs was among a handful of industry and consumer leaders who earlier this year weighed in on health insurance legislation at a fact-finding meeting hosted by Kennedy and other members of his committee.

Banks still on agenda

NAR’s long fought effort to keep national banking conglomerates out of real estate brokerage and management is expected to move forward, too.

Frank of the House Financial Services Committee has made it clear he’s open to holding hearings on the Community Choice in Real Estate Act (H.R. 111), which is supported by the committee’s ranking member, Spencer Bachus, R-Ala., and backed by NAR. The bill was re-introduced in the House on Jan. 4 and had almost 110 cosponsors three weeks later. A companion bill in the Senate was introduced in late January by Clinton and Sen. Wayne Allard, R.-Colo.

At the same time, NAR is laying the groundwork to encourage passage of a provision banning the use of appropriations to fund the finalizing of the controversial banks-in-real-estate rule that the U.S. Treasury Department and the Federal Reserve proposed early in 2001, igniting the banks in real estate debate.

Starting with fiscal year 2003, NAR has succeeded in getting a one-year appropriations ban enacted each year, and in the past two years it’s obtained a permanent ban in the Senate, though the permanent language has yet to survive negotiations between the House and the Senate. Getting the permanent ban into the final appropriations bill the president signs is one avenue NAR will keep pursuing. “Protecting consumers from banks entering real estate brokerage is our priority,” says Combs.

Given the central place of REALTOR® issues in Congress this year, that ban could yet get enacted.

Robert Freedman

Robert Freedman is the former director of multimedia communications at NAR.