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» ECONOMIST DECRIES NEW QRM PROPOSAL While many in the industry laud the recent changes the Consumer Financial Protection Bureau (CFPB) made to the proposed Qualified Residential Mortgage (QRM) rule, one economist says the new proposed rule sets the stage for another housing crisis. Robert C. Pozen, a senior fellow in economic studies at the Brookings Institution suggested shared his dire outlook in a recent article in the Wall Street Journal, expressing his concern that without the assurance of a substantial down payment or risk retention from lenders, risky lending will prevail. "Under the proposed rules for home mortgages, most borrowers would make minimal down payments and most lenders would have no risk of loss," Pozen said. "This is a good way to create another mortgage crisis." Original proposals for the QRM included a 20 percent minimum down payment requirement and a maximum loan-to-value ratio of 36 percent. The CFPB's new proposal, released August 28, includes no minimum down payment requirement and increases the maximum loanto-value ratio to 43 percent. While the Mortgage Bankers Association said the original rule "would have unduly constrained the availability of mortgage credit for many borrowers," Pozen disagrees, drawing on the Canadian housing market for comparison. Lenders in Canada generally require a down payment of at least 20 percent, and the nation's homeownership rate is even higher than the U.S. 67 percent compared to our 65 percent, according to Pozen. Loans that do not meet QRM standards require 5 percent risk retention by lenders, unless they are backed by the Federal Housing Administration or the GSEs. "The combination of low down payments and government backing is lethal," Pozen said, pointing out the FHA's low 3.5 percent down payment requirement. He also noted that the GSEs require a down payment of "only" 10 percent. While the future of the GSEs is unknown, any losses they bear in their current state are absorbed by taxpayers. The same is true for the FHA, which currently does not meet its statutory minimum loss reserves due to significant losses in recent years. "In short, if the U.S. wants to promote homeownership, it should learn from past mistakes," Pozen said. VISIT US ONLINE @ DSNEWS.COM HUD ANNOUNCES NEW SHORT SALE REQUIREMENTS HUD announced a number of changes to Federal Housing Administration (FHA) short sale requirements. To be eligible for an FHA short sale, borrowers must meet the following requirements: 1) They cannot list the property with or sell it to anyone with whom they are related or have a close personal or business relationship. In legal terms, it must be an "arm's-length" transaction. 2) Any knowing violation of the arm's-length requirement may be a violation of federal law. 3) The mortgage must be in default on the date the short sale transaction closes. In addition, before closing, any additional liens against the property must be released. A lien holder who demands a payment to release its lien must submit a written statement and an agreement to release the lien if that amount is paid. For a standard preforeclosure sale, servicers are required to use a Deficit Income Test (DIT) to determine a homeowner's financial hardship. The IRS Collection Financial Standards is used to verify homeowners' expenses not reflected in their credit reports. Only owneroccupied properties are eligible for the standard preforeclosure sale. Homeowners eligible for a streamlined short sale may not be required to submit financial information or have a financial hardship. Principal residences, second homes, investment properties, and service members who have received Permanent Change of Station (PCS) Orders are potentially eligible. The appraisal of one's property should be completed within approximately 10 business days. After the appraisal, the short sale file will be updated and prepared for review. In some cases, approval may be required by the investor and/or FHA, which may take more time. As a new condition, one might be required to make a final payment (sometimes called a cash contribution) before closing. This payment will reduce the deficiency balance. If one is an owner-occupant, acting in good faith, and successfully selling one's property, one may be eligible for an incentive of up to $3,000. The revised FHA short sale addendum must be signed and dated by all parties. Under this addendum, all parties agree that the subject property must be sold through an arm's-length transaction. An arm's-length transaction is defined as a short sale between two unrelated parties that is characterized by a selling price and other conditions that would prevail in an open market environment. Also, no hidden terms or special understandings can exist between any of the parties (e.g., buyer, seller, appraiser, sales agent, closing agent, and mortgagee) involved in the transaction. The changes outlined by HUD became effective October 1. One previously announced changed to FHA's short sale program that was subsequently left out of the final rule changes was the agency's restrictions on dual agency transactions. According to the National Association of Realtors (NAR), HUD has delayed its prohibition of dual agency listings on short sale properties "indefinitely." The HUD prohibition had first been outlined in a July letter to mortgage servicers describing new anti-fraud requirements for short sales and deed-in-lieu of foreclosure transactions and was also slated to go into effect October 1. In response to the proposal, NAR President Gary Thomas wrote a letter to HUD outlining the trade group's concerns with both the reasoning behind the prohibition and the possible consequences of it. "NAR has been told that the policy was implemented because the HUD Inspector General detected fraud and abuse in the preforeclosure sales process; however, no statistics or reports were provided to NAR detailing short sale fraud by real estate agents," the letter said. "NAR takes fraud very seriously—if there is evidence of fraud by our membership, we would like to be part of an effort to develop policies that effectively address these issues." Thomas's letter also raised concerns about how a prohibition on dual listing would affect agents' and brokers' ability to effectively serve their clients. "More homeowners are at risk of falling into foreclosure if they cannot find a real estate agent, especially one who is knowledgeable about the short sale process, to list their homes," Thomas said. "Some real estate brokers have hundreds of agents across multiple offices. If one of those offices chooses to list a short sale, under HUD's new policy, none of the other agents can bring a buyer to that property. Members have told me that they will no longer list short sales because they do not want to restrict agents from representing their buyers, many of whom have been loyal customers for years." KNOW THIS There are 117,000 fewer homeowners than there were a year ago, according to data from the Commerce Department. 37

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