FHFA Directs GSEs to Take Actions Regarding PACE Program Energy Retrofit Loans
On July 6, 2010, the Federal Housing Finance Agency (FHFA) directed Fannie Mae and Freddie Mac (the government-sponsored enterprises, or GSEs) and the Federal Home Loan Banks to take specified actions related to loans under Property Assessed Clean Energy (PACE) programs. PACE programs offer loans for residential and commercial property energy retrofits, to be paid back through the tax assessment system of counties and cities. FHFA raised safety and soundness concerns when PACE is structured so the loan repayments are given first lien status, like routine local tax obligations, ahead of first mortgages owned or guaranteed by the GSEs.

FHFA directed the GSEs to take several actions:
1. For any homeowner who obtained a PACE (or similar) loan with a priority first lien before July 6, 2010, the GSEs must waive existing prohibitions against such senior liens. This grandfathers current homeowners who already have PACE loans.

2. The GSEs must adopt rules to protect their safe and sound operations, including (i) lowering maximum loan-to-value ratios for loans for all borrowers in jurisdictions with a PACE program; (ii) requiring approval/consent for any PACE loan; (iii) tightening borrower debt-to-income ratios to account for potential additional GSE losses associated with possible future PACE loans; and (iv) ensuring that mortgages on properties in jurisdictions with PACE programs satisfy all applicable federal and state lending rules.

FHFA has also directed the Federal Home Loan Banks to make sure that collateral pledged by its members as security for advances is not hurt by PACE (or similar) loans that include first liens.

The new policies only apply to PACE (or similar) programs that provide for a senior lien priority for energy retrofit loans.

FHFA Statement on Certain Energy Retrofit Loan Programs >

Contacts: Jeff Lischer, 202-383-1117

Contacts: Austin Perez, 202-383-1046

Contacts: Russell Riggs, 202-383-1259

Conventional Residential Lending Report

Fannie Mae Discourages Strategic Defaults
On June 23, 2010, Fannie Mae announced policy changes to discourage strategic defaults—defaults by borrowers who have the capacity to pay or who do not complete a workout alternative in good faith. Borrowers who engage in strategic defaults will be ineligible for another Fannie Mae-backed loan for seven years from the date of the foreclosure. In addition, Fannie will also seek deficiency judgments, if allowed by state law. In July, Fannie plans to issue instructions to servicers detailing the new policies.

Fannie Mae News Release >

Contacts: Jeff Lischer, 202-383-1117

Contacts: Tony Hutchinson, 202-383-1120

Fannie Mae Announcement Addresses Several NAR Appraisal Concerns
Fannie Mae’s Selling Guide Updates and Additional Guidance on Appraisal-Related Policies, Announcement SEL-2010-09, addresses many concerns raised by the National Association of Realtors (NAR) regarding the Home Valuation Code of Conduct (HVCC) and the appraisal policies of the government sponsored enterprises (GSE), Fannie Mae and Freddie Mac. The announcement addresses geographic competency, lender changes to the appraisal report, communication under HVCC, and the use of short sales and foreclosures as comparable sales. NAR had previously called on the GSEs to provide additional guidance on these issues.

The guidance states that Fannie Mae requires lenders use appraisers with geographic competency. Although USPAP allows an appraiser who does not have the appropriate geographic knowledge to accept an appraisal assignment, Fannie Mae does not allow this flexibility. Further, the announcement states that appropriate communication with the appraiser is permitted under HVCC and nothing in the Code or in Fannie Mae appraisal policy requires the use of third party appraisal management companies (AMC).

Fannie Mae found that lenders are sometimes reducing the opinion of market value in the appraisal report. Appraisal policies for Fannie Mae have been updated to provide information on steps lenders may take if an appraisal is found to be deficient. The lender may request a field or desk review of the report in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP). The lender may forgo the review and obtain a new appraisal.

Additional guidance is offered by Fannie Mae for the use of short sales and foreclosures as comparable sales. The appraiser is responsible for determining which comparables are appropriate for the appraisal report and must account for all factors that affect value when completing the analysis. According to the guidance, the appraiser may use a short sale or foreclosure as a comparable but must identify and consider differences from the subject property and cannot assume the properties are equal.

Announcement SEL-2010-09: Selling Guide Updates and Additional Guidance on Appraisal-Related Policies >

Contacts: Jeff Lischer, 202-383-1117

Contacts: Tony Hutchinson, 202-383-1120

Federal Tax Report

IRS Criticizes New Reporting Requirement
The recently-enacted health care reforms included a new tax reporting requirement that has generated significant controversy. Under current law, a business is required to issue a Form 1099 information report of any payment that it makes to an individual or unincorporated entity for services that vendor supplies. The health reform bill expands the reporting requirement by adding a requirement that payments for goods be included in this reporting regime. The new requirement is effective beginning in 2012.

The IRS Office of Taxpayer Advocacy (a sort of ombudsman for taxpayer problems) issued a report this week that, among other things, criticized this provision for the great burden it imposes on small businesses and the IRS itself. As many as 40 million Forms 1099 would have to be provided to vendors and to the IRS. The Advocate notes that “[t]he Office of the Taxpayer Advocate is concerned that the new reporting burden, particularly as it falls on small businesses, may turn out to be disproportionate as compared with any resulting improvement in tax compliance.” Further, the Advocate’s report suggested that the IRS does not have adequate resources to the process the additional 1099s to glean and systemize the information from so many reports. The Office believes that it is likely that the cost of compliance may exceed the amount of revenue that could be gained.

The small business community is very opposed to this new requirement and is making efforts to overturn it before it can become effective.

Contacts: Linda Goold, 202-383-1083

Contacts: Samuel Whitfield, 202-383-1131

Top News
Wells Fargo to cut 3,800 jobs
CNN Money – – About 2,800 of the job cuts will happen in the next 60 days, and the remaining…Economic Report: Credit-card delinquencies fall to 8-year low: ABA
MarketWatch – – By Ruth Mantell, MarketWatch WASHINGTON (MarketWatch) — Late payments for bank-provided credit cards fell in the first quarter to the lowest level in eight years, the American Bankers Association reported Wednesday.

Post office proposes raising stamp price
USA Today – – The U.S. Postal Service wants to raise the price of a first-class stamp by 2 cents to 46 cents to avoid running out of cash next year, officials said.

Market News
Real Estate Weekly: Fewer homeowners choosing to default on mortgage
MarketWatch – – By MarketWatch Don’t miss these top stories: Nineteen percent of mortgage delinquencies were “strategic defaults” in the second quarter of 2009, according to findings released this week from Experian and Oliver Wyman.Mortgage rates drop to record low of 4.57%, says Freddie Mac
USA Today – – NEW YORK – Mortgage rates fell for the second straight week to the lowest point in five decades. But many people either don’t qualify for new mortgages or have already taken advantage of the low rates this year.

Mortgage Applications Decline for 8th Week
REALTOR Magazine – – Applications for mortgages to purchase property declined again last week, falling eight out of the last nine weeks, according to the Mortgage Bankers Association.

7/7/2010 Mortgage Refinance Applications Increase in Latest MBA Weekly! Survey » Mortgage Bankers Association -The Refinance Index increased 9.2 percent from the previous week and is the highest Refinance Index observed in the survey since the week ending May 15, 2009.

Technology News
ForeclosureRadar Releases iPhone App, Makes Professional-Quality Foreclosure Information and Services Available in the Field – Daily auction schedules, property details, photo and note-taking tools now available anywhere DISCOVERY BAY, Calif., July 7, 2010 –  ForeclosureRadar