Friday, April 20, 2012

What You Need to Know about Know Before You Owe

This week has seen a flurry of activity from all areas of the housing sector.  The Consumer Financial Protection Bureau is coming dangerously close to finalizing its rulemaking on the Know Before You Owe initiative.  In response to the CFPB's request for comments, on Monday April 16, the American Bankers Association, the American Escrow Association, the American Financial Services Association, the American Land Title Association, the Community Mortgage Banking Project, the Consumer Mortgage Coalition, the Mortgage Bankers Association, the National Association of Realtors and RESPRO sent a joint letter to the CFPB outlining their concerns with the proposed legislation. The full text of the letter can be read by going to and clicking the appropriate link for the document dated 4/16/2012.

While the letter is quite lengthy and includes comments on a number of different aspects of Know Before You Owe, I want to focus on just a couple of major points about how broad this initiative will be.(To get a sense of the scope of what is involved here, I really do recommend that everybody working in this industry read the comments' letter for themselves; I promise that it will be an eye-opening experience.) The Dodd Frank bill charged the CFPB with creating a new disclosure to merge the Good Faith Estimate and the Truth in Lending Form into one new document that would be easier to understand.  In 2008, after 6 years of working and hosting round tables, HUD mandated the new three page good faith estimate that we are now using.  In 2011, the Federal Reserve changed the truth in lending form.  So both forms have already undergone pretty significant revisions.  Apparently this is going to be a huge process.

This time around, the CFPB has included items such as changing the RESPA definition of an application, requiring more disclosures (because we all know that we don't have enough disclosures), reducing the current tolerance that we are now allowed for our settlement service providers on our "written provider's list" from 10% to 0% and requiring that borrowers receive their HUD-1 settlement statement three days before closing.

While each of these proposed reforms is sweeping and has huge consequences for us, perhaps the most important consideration to the future of U.S. Housing Finance is going to be the CFPB's effort to define the Qualified Residential Mortgages and Qualified Mortgages.  The Dodd Frank bill requires the creation of qualified residential mortgages which will be exempt from the new 5% risk retention rules.  QRMs will be the only mortgages that third party loan originators will be allowed to sell in the new regulatory environment, so their definition is very critical to our futures.  The Dodd Frank bill requires that these mortgages contain a 3% cap on points and fees. For a refresher on this issue see Risk Retention, Qualifed Residential Mortgages and the Future of Housing. Now the CFPB is trying to define what constitutes "points and fees."  Initially, many of us supposed that this cap would cover lender and broker fees and attorney fees--the items that go into block 1 of the GFE.  But apparently the CFPB has other plans and is now looking at including title insurance, third party fees such as appraisals and surveys, and escrows.  Under this definition, no small loan will qualify as a QRM.  This definition will mean the end of third party origination in the U.S., especially since we are not allowed to adjust our percentage of compensation from transaction to transaction.

This week NAMB (The National Association of Mortgage Brokers) sent out a call to action video asking all brokers to contact their Representatives and ask for support of HR 4323, The Consumer Mortgage Choice Act, which would change the way the 3% cap is calculated on qualified residential mortgages.  If this bill were to pass and be signed into law, it could fix many of the immediate considerations that threaten to shut down our industry.  NAMB legislative chair John Hudson's video can be seen below:

Frankly I think everybody in our industry is being way too polite.  Instead of adopting a "please don't kill us all" strategy, we should be pressing for a total repeal of Dodd Frank, closure of the CFPB and the removal of Richard Cordray from his recess appointment position.  Interestingly, this week also saw the several members of the U.S. Senate join a lawsuit against a number of recess appointees from January on the grounds that the Senate was not in recess when these appointments were made.  Unfortunately, the lawsuit applies only to appointments involving the National Labor Relations Board.  Corday's appointment is not being challenged as part of the suit because the plaintiff is alleging damage at the hands of the NLRB only.

We as an industry have not done a good job of standing up for ourselves or explaining to the American people that housing finance is important to their individual futures and to the overall economy.  And because of that, we are really suffering now as Cordray doubles down to finish off all independents who have survived the last five years.

We expect to see a lot more activity on these issues in the next few weeks.  I will keep you posted.

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen. For more information, visit her website at

Wednesday, April 11, 2012

Where's Robin Hood When We Need Him?

Last Thursday, Secretary of Agriculture Tom Vilsack announced that the federal government will be spending 41.6 million dollars to purchase 20,000 acres of private land to add to the national forests.  The purchases were from "willing sellers" and were financed through offshore drilling fees paid by private companies into the Land and Water Conservation Fund.  The fund caps annually at $900 million and is used by the U.S. Forest Service to finance land acquisitions and by other agencies as well. 

Among the purchases was 1288 acres of land owned by the Fleming family for over 100 years which is surrounded by national forest.  One of the news sources I checked for this post featured a breathtaking photo of this property--which had been used as a Fleming family retreat.  The property, which abounds with oak, pine and Douglas fir, is adjacent to the Pacific Crest Rail and the San Jacinto Wilderness. The Forest Service has promised to thin the trees to minimize fire danger and "promote carbon sequestration."

Also among the purchases, the Forest Service is paying $1.4 million to finish purchasing 1,481 acres of land which had previously been marketed for vacation home sites along the Imnaha  River in Oregon.  This land will be added to the Hells Canyon National Recreation area and the Wallows-Whitman National Forest. Still other purchases will be used to protect salmon habitat, preserve ancient petroglyphs and conserve meadows and wetlands, protect migration corridors for wolves, grizzly bears, and other wildlife and to achieve various other eco-friendly outcomes.  The acquisition also included $800,000 to purchase land to "fill a doughnut hole of private land within the Shasta-Trinity National Recreation Area on the shore of Lake Shasta that could be developed as a subdivision." (CBS News)

The federal government's move is being widely criticized by some conservatives and libertarians as a waste of money--how does the federal government justify spending 41 million dollars to buy up private land when the country is massively in debt.  And I think that this is a fair criticism.  But I think that there are other issues at play here as well.

Currently, the U.S. government owns about 30% of the land in this country.  None of that land is available for development, for housing, or for any other private use.  Don't misunderstand--I think the national forest system is a good thing--in moderation.  Whenever I can escape the heat and dust of El Paso, I take 2 hours to drive up to Ruidoso, New Mexico where I enjoy the Lincoln National Forest.  I agree that our country needs beautiful public places where families can camp and picnic and all of us, regardless of socioeconomic status, can enjoy all that our country has to offer.  

Having said that, I also think that we have enough of these public spaces as it is.  Like it or not, development stimulates the economy.  The purchase of the 1481 acres in Oregon will "open public access to thousands of acres of public lands that are home to Oregon's largest herd of Rocky Mountain big horn sheep [and] also provides habitat for rare plants and birds," according to CBS News.  The economy in Oregon might get stronger if instead of spending every resource on preventing development, the federal, state and local governments would open up this breathtaking state to developers who would build houses that could in turn be sold to people with money who would then bring that money into the economy in Oregon.  Instead, we are curtaining off more and more property for the exclusive ownership of the federal government and the exclusive benefit of the wildlife residing on it. 

Because of the way that our country sprang up, many Americans do not understand what a privilege private property rights really are.  Likewise, they do not see the dangers to liberty of the government owning too much of the land.  But government control of the forest and protections of animals living on it is the very stuff of the Robin Hood legend, where the bandit emerged to fight for the common man against a system that called for the execution of men who hunted the king's deer.  And while the legends of Robin Hood and his battles with the tyrannical King John really are just that--legends--the facts are that private property rights were central to the early battles of the English people to obtain some freedom.  The Magna Carta--the document which King John's barons forced him to sign at Runny Mead in 1215--contains 5 clauses dealing with the rights of the people to access the forest.  Although the Magna Carta is popularly seen as a forerunner to our own system of laws, the property rights spelled out in the document were just the first shot in a long battle for the English people to win their rights to the forest.  In 1217, King Henry III signed the Charter of the Forest, which established rights of access to the Royal Forest for all "free men".  The Charter of the Forest was one of the first documents to grant real rights, privileges and protections for common men and to assert private property rights at a time when the king had claimed huge blocks of land as "Royal Forest" under the crown's protection.  The Charter of the Forest was reissued in 1225 and became part of the Confirmation of Charters in 1297.  It gave the people the right to use their own land within the forest as they saw fit, "provided that no injury is thereby given to any neighbor."  The Charter also repealed the death penalty for killing a deer in the Royal Forest and abolished mutilation as a punishment for illegal acts in the forest or against the forest animals.

The Charter of the Forest was so important to English law that it actually became the longest statue in force in England--from 1217-1971 when the final clauses of it that still remained in effect were replaced by the Wild Creatures and Forest Laws Act of 1971. 

If our government continues to expand its ownership of forest lands and its protections of the animals living in the forest, we may need to get a copy of the Charter of the Forest as a guide to spell out our own rights and protections with regard to access to the land. And if, after we have drawn up our own charter, our government won't acknowledge our rights, we might just need to enlist the help of our own modern day Robin Hood.

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen. For more information, visit her website at Frontier 2000.

Wednesday, April 4, 2012

Smart Growth and Zoning Laws--Changing the Way We Worship--Part II

This weekend, tens of millions of Americans will attend Easter and Passover services across the U.S.  Many of the worshippers will do so without realizing that their ability to meet together in a building of their choice to worship as they please is under immediate threat.

I started this two part series with a post last week about how New Urbanism and zoning laws across the U.S. are challenging the ability of individual Americans to meet at home with other like-minded fellow citizens for worship, Bible study and prayer.  Today I am finishing the series with a look at how we may be in the process of losing our right to meet for religious expression in any setting.

Few Americans seem to understand that the very existence of churches of all denominations is being threatened.  Last year saw a record number of church foreclosures across the U.S., and that trend is expected to continue this year.  Interestingly, many of the churches were not foreclosed on because they could not make the payments.  Rather, many of the foreclosures happened because the church notes ballooned and the churches could not get their financing renewed and could not obtain new financing.  Part of this phenomenon is a result of the overall drop in real estate values across the nation.  During the boom years of 2006 and 2007 many churches expanded--unfortunately now the values of these renovated buildings have dropped off to little more than the balance of the note owed.  Banks, who are finding themselves increasingly under pressure from regulators to clean up their balance sheets, do not want to extend the terms of these loans, which often balloon after five years, and so they call the note due and demand that the church pay the entire balance remaining on the loan.  If the church is unable to come up with the money, the bank is completely within its legal rights to foreclose.

The loss of these facilities is particularly important to religious freedom, because typically existing buildings are grandfathered in under new zoning laws, but if the building is sold or changes ownership, or is damaged and has to be rebuilt, the new zoning ordinances apply. And many of these are not favorable to houses of worship.

In the U.S. we have been accustomed to enormous freedom of religion.  Traditionally, if something happens to our church, we find a new one.  Even if we belong to a tiny, minority faith population, if there are enough of us to be able to rent a facility, we can meet together.  Sixteen years ago, I had the privilege of attending a Passover Seder led by a Messianic Jewish group in El Paso, Texas.  The experience was fascinating, and one I will never forget.  Although the regular congregation for this group was quite small--about 30 members, they were able to meet in a small building because together they were able to pay the rent to do so.  But in the brave new world of New Urbanism, city planners decide where we can meet and when.

In Holly Springs, Mississippi, for example, Opulent Life Church, an African-American church with a congregation of about 20-25 people, has been denied the right to meet in a building it leased downtown.  The church leased the building and then began working to get the permit, but the permit request was tabled by the Planning Commissioner because Holly Springs has an ordinance that requires that 60% of the people in the downtown area must approve the new house of worship before it can be allowed to relocate.  Additionally, the mayor and a board of advisors must approve the request prior to the permit being issued.  Liberty Institute took the church's case and sued in District Court for an injunction against the ordinance on the grounds that this ordinance does not apply to businesses or homes, but only to religious institutions.  The District Court ruled against the church on the grounds that because the church is not meeting the capacity of its current building, the church is not suffering any harm through the denial of the right to move downtown. Liberty Institute has appealed the decision to the U.S. Court of Appeals.

The Holly Springs case is just the most recent as communities decide how big the churches can be and where they can be located.  In Leon Valley, just outside of San Antonio, a small evangelical church has filed a lawsuit against the city because new zoning laws prohibit the church from using its building for Sunday morning worship services.  The zoning board has ruled that churches cannot be located in retail zones.  In Rolling Hills Estates, California, planning officials denied a permit to a church because the city banned churches from commercial areas. In some cases, churches are denied permits because they could be too close to businesses that sell alcohol and that would decrease the city's potential revenue from alcohol sales.

One major goal of the new zoning laws is to create density and to help cities generate revenue.  Churches, which are tax-exempt, are not seen as revenue generators.  And churches who participate in social welfare programs, such as feeding the homeless, are often seen as participating in activities that should be the responsibility of the government. In Houston, Texas, a church that had been feeding the homeless for over a year had to terminate its program when the city began to require permits that the church could not acquire.  Homeless, indigent people are not part of the image that cities want, and churches who offer programs to help these people are often viewed as contributors to the problem.

New Urbanism, with its heavy emphasis on public transportation and mass transit, is often at odds with church requirements for parking.  Even in cities that specifically include houses of worship in their master plan, the requirements for land can be onerous.  Within urban areas, requirements that a church own at least a two acre tract of land or a 10 acre tract to accommodate a church with a gym can make it almost impossible for congregations to acquire a building.

But even when congregations are willing to go outside of the city limits, they may not find a place to worship out of the close watch of the planners.  In 2002, Mollala Christian Church in Clackamas County, Oregon, bought farmland on the outskirts of town.  The church went to work getting permits to build only to be told by the county planning director that churches are not allowed in the "Exclusive Farm Zone" which is within three miles of the Urban Growth Boundary.  Urban Growth Boundaries are designed to keep development within the confines of certain areas--on the other side of the boundary no development is allowed.  The church appealed the decision but the zoning director's decision was upheld because the soil was "high value farm land" and the state had a "compelling government interest" in ensuring that the land remained agricultural. Eventually, the Becket Fund for Religious Liberty took the church's case and successfully argued that since the county was allowing construction of  other types of structures in the Exclusive Farm Zone, including "community centers, wedding facilities, golf courses, wineries and farm stands" they were clearly discriminating against the church.  County Commissioners agreed in a 2-1 vote.

Although the church was ultimately victorious in this case, we must remember that much of the zoning, Smart Growth and New Urbanism is coming to us from Oregon, and we can expect to see many more laws that mirror theirs.  Former Yale Professor Randal O'Toole, now with the CATO institute, has written and spoken extensively on the subject of New Urbanism. In his book The Best Laid Plans-How Government Planning Harms Your Quality of Life, Your Pocketbook and Your Future, O'Toole, writes that in Oregon a person cannot build his own home on his own land in the areas designated rural--95% of the state--unless he owns "at least 160 acres, actually farm(ed) the land and earned $40,000 to $80,000...farming it in two of the past three years."  With restrictions like these in place, planning and zoning boards are not going to be open to tax exempt churches which build huge buildings, use air conditioning and heating, and require large amounts of parking.

All of these restrictions are going to profoundly affect the way we practice our faith in the U.S.  If churches are not allowed to move from their existing buildings, they cannot hope to grow.  As our society morphs into a society of high density, urban lifestyles where people rely on public transportation rather than individual cars, their ability to choose or change houses of worship will be dramatically altered.  Even the operation of some churches will be affected.  In the Church of Jesus Christ of Latter Day Saints (Mormons) for instance, the bishop decides how big each house of worship (ward) should be.  When he decides that the ward is too full, he assigns part of the families to a different ward.  But if families do not have transportation and must rely on bus routes, how are they going to be able to comply with the bishop's orders?

I also think of other small faith populations. Not far from my office is a synagogue. If I am working on Saturdays, I can see the Jewish families walking home after services; I have been told that Orthodox Jewish people do not drive on the Sabbath since driving is considered work. As we convert to a high density, Smart Growth plan, I wonder what will happen if the new planning officials decide that there are not enough Jews in our community to deserve a synagogue within walking distance of their homes. Granted, we have a very small Jewish community here, but shouldn't they have the right to have a house of worship that is conveniently located so that they can fulfill the Torah requirements of not working (driving) on the Sabbath?
One of the problems with Smart Growth and New Urbanism is that it allows a handful of zoning officials to determine the standard of living for the entire community.  El Paso is predominately Catholic, but our community also contains Protestants of all major denominations, non denominational evangelicals, Jews, Muslims, and Hindus.  Who decides which houses of worship will be available and how many of each will be permitted in any given area? Who determines whether two Catholic churches is enough in a given area?  Who decides that the group of ten evangelicals who want to meet on Sunday mornings is too small to justify being allowed a meeting place?  Who decides that the mega church is too big and is taking up parking and resources that should be converted to green space?  Church Architect Randy Bright has written extensively on the dangers that New Urbanism pose to religious liberty.  He writes, "ultimately, this boils down to matter of who will control what goes into our cities, and as the planners almost universally accept the notion that human beings belong only in urban areas, and that churces don't have a place in urban areas, church facilities will eventually disappear from the urban environment--unless we are willing to fight to keep them there."

This weekend, if you choose to attend a religious service for either Passover or Easter, look at the building where you are meeting and think about the impact on your life if you could no longer meet together for worship.  A client of mine from India who was born into a Hindu family, educated at Presbyterian schools, and is now an atheist, recently expressed to me that one of America's greatest strengths is the right of every person "to believe in whatever he or she wants to--or to believe in nothing at all."  I agree with him, but I would take his statement one step further--it is not just our right to believe what we choose but to practice those beliefs as we choose, to share our faith in community with others and to teach our beliefs to our children.  If we don't stand up for that freedom, we will lose it.
Alexandra Swann's new novel, The Planner, about an out of control, environmentally-driven government is available on Kindle and in paperback. She is also the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen. For more information, visit her website at Frontier 2000