Congress Acts to Reduce Excessive Regulatory Burden on Small Businesses

Ongoing efforts by NAHB to reduce excessive regulatory burdens on small businesses produced results in Congress last week with the approval of two bills that would rein in and reduce the costs of new federal regulations.

In a victory for the nation’s home builders, the House on Dec. 2 voted 253 to 167 to approve H.R. 3010, the Regulatory Accountability Act of 2011, which would modernize the 65-year-old Administrative Procedure Act to permit federal agencies to select the least costly options when writing new rules.

On Dec. 1, the House also approved the Regulatory Flexibility Improvements Act (H.R. 527), companion legislation supported by NAHB stipulating that federal agencies must identify and reduce the costs of regulations on small businesses when determining the economic benefits of a proposed rule.

A recent study by NAHB economists found that, on average, 25% of the cost of a single-family home is attributable to government regulation.

Given the substantial regulatory burden already borne by the housing industry and the fact that the Small Business Administration has acknowledged that small businesses continue to bear a disproportionate share of the federal regulatory burden, the NAHB board — at the behest of the Home Builders Association of Kentucky — enacted policy at its fall meeting in Milwaukee to “support congressional efforts to address overly burdensome regulations, especially those that impact small businesses in the housing industry.”

In leading a business community push for passage of these bills, NAHB sent a “key vote” letter to House members prior to the vote on H.R. 3010 urging them to support the measure because it would reduce regulatory costs, limit unnecessary regulations, spur job growth and strengthen the economy.

“H.R. 3010 will help ensure that regulations are narrowly tailored, supported by strong and credible data and evidence, and impose the least burden possible while still implementing congressional intent,” the letter said.

“This bill will make the regulatory process more transparent, agencies more accountable and regulations more cost-effective.”

Sponsored by Reps. Lamar Smith (R-Texas), Howard Coble (R-Minn.) and Collin Peterson (D-Minn.), the bipartisan bill seeks to rein in costly and unnecessary regulations by placing permanent restrictions on regulatory agencies and requiring openness and transparency in the regulatory process.

“Government regulation has become a barrier to economic growth and job creation,” said Rep. Smith, who also serves as chairman of the House Judiciary Committee.

“We need to encourage businesses to expand, not tie them up with red tape,” Smith said. “The Regulatory Accountability Act will help lift the regulatory burden and free up small businesses and employers to spend more, invest more and produce more to create more jobs for American workers.”

The legislation would enhance the regulatory process by:

• Increasing public participation in shaping the most costly regulations ($100 million in impact or more annually) before they are proposed
  
• Requiring agencies to choose the least costly option unless they can demonstrate a need to do otherwise to protect public health, safety or welfare
  
• Providing for on-the-record administrative hearings for the most costly regulations to insure that data from agencies are well tested and reviewed
  
• Restricting agencies’ use of interim final regulations where no comments are taken before a regulation takes effect and providing expedited judicial review of whether that approach is justified
  
• Providing a more rigorous test in legal challenges for those regulations that would have the most impact ($1 billion in impact or more annually).

The House is expected to vote on a third regulatory reform bill this week.

H.R. 10, the Regulations From the Executive in Need of Scrutiny (REINS) Act, is sponsored by Rep. Geoff Davis(R-Ky.) and would require congressional approval for government regulations that have an annual impact of at least $100 million.

Companion bills for H.R. 3010 (S. 1606) and H.R. 10 (S. 299) are pending in the Senate.

The legislation can be viewed on http://thomas.loc.gov by typing the bill number in the box at the upper center of the page.

For more information, email Alex Strong at NAHB, or call him at 800-368-5242 x8279.

Article reprinted with permission from the NAHB

NAHB Continues to Make Headway on Fixing Broken New-Home Appraisal System

On improving the residential appraisal process — an issue that continues to hold major implications for the nation’s housing markets -— NAHB has been working hard behind the scenes on several fronts and has been able to make significant headway.

Deficiencies in the current system for evaluating homes have become glaringly evident in the unprecedented housing downturn of the past few years.

Faced with declining home prices, rising foreclosures and plunging new-home sales, builders have had to contend with inaccurate appraisals that have further undermined the health of their businesses and the housing market.

Widely reported around the country, poor appraisals have reduced home sales, taken a vicious swipe at the profitability of builders and have made it difficult for them to project whether they will be able to attain the prices they need to cover the construction costs of their new homes.

“Too often, due to faulty appraisal practices, the builder’s house winds up getting appraised at less than the cost of construction,” said NAHB Chairman Bob Nielsen.

“This is not only unfair and unreasonable, but it perpetuates the cycle of declining home values, drives more home owners underwater, negatively affects housing demand and acts as an obstacle to the recovery of the housing market,” he said.

“Major reforms in appraisal practices and oversight are needed to ensure that appraisals accurately reflect true market values and don’t contribute to price volatility,” he said.

An ongoing series of surveys of builders by NAHB’s Economics and Housing Policy Group shows that appraisal problems persist today.In the latest survey in October, a full 60% of the respondents reported that they were experiencing appraisals coming in below their contract sales price.

Of those reporting that they had encountered this problem, 53% said that the appraisal they received was lower than the cost of producing the home.

One-third of the builders responding said that they had lost sales during the preceding six months as the result of an appraisal that was less than the contract sales price.

The inappropriate use of distressed properties as comparables, confusion over the ability of builders to convey relevant information to appraisers, a shortage of local appraisers with the experience and knowledge needed to recognize the value of green and other home features to arrive at good evaluations, and the complexity and fragmentation of the appraisal system have all contributed to the faulty process.

The good news is that by working with representatives of federal banking regulators, the appraisal industry, the housing finance industry, the real estate and housing sectors and others, NAHB has scored considerable progress in finding remedies for what seriously ails the appraisal system.

Several milestones center around the four appraisal summits that NAHB has held in Washington, commencing in 2009, with the latest held last month.

A timeline of events tracing the problem and its solutions is included in this special issue of Nation’s Building News. Also available is an overview of the fourth summit, with links to coverage on the first three meetings.

With the decline in home prices appearing to have ended or to be coming to an end in most parts of the country, improving housing market conditions themselves are expected to gradually alleviate some of the negative impact of appraisals.

However, those within the appraisal industry itself recognize that today’s system is outmoded and to be truly effective will require a major overhaul that will take years to accomplish.

A white paper in this issue by Joan Trice — who is working with NAHB to provide resources that association members can use to get the best results from a malfunctioning appraisal system — describes in detail the major undertaking that will be needed to reengineer the appraisal process.

Resources have been collected on NAHB’s website to assist builders on the appraisal issue (some of the links below are available to NAHB members only).

Following are specific issues where builders have gained ground and are working to make further strides in the year ahead:

• Communication between the builder and the appraiser
  
  NAHB worked extensively with Fannie Mae and Freddie Mac to clarify that neither the Home Valuation Code of Conduct nor Fannie Mae prevents a builder from communicating with an Appraisal Management Company or appraiser to provide additional information or explanation on the basis for a valuation or to correct objective factual errors in an appraisal report.
  
  Guidance released by Fannie Mae on June 30, 2010, addressed this issue. (It also addressed many other issues that NAHB had been working on with Fannie Mae — such as requiring appraisers to identify the differences between the home being appraised and a distressed property being used as a comparable sale; requiring lenders to only use appraisers who are knowledgeable and experienced in appraising specific property types located in a given market; allowing sales of the builder to be used as comparable properties; and barring lenders from making unilateral changes to appraisal reports.)
  
  NAHB developed a two-page summary for members on how to build stronger and more productive relationships with appraisers.
  
  Builder communication with lenders and appraisers should include: market and absorption information, sales information, all relevant data, specifications of the property, details on the materials that were chosen and buyers’ reactions to the products selected.
  
• The Federal Reserve Board’s interim final rule on appraisal independence 
  Provisions in the Dodd-Frank Act, which was signed into law on July 21, 2010, prohibit appraiser coercion and required rulemaking by the federal financial regulators on the independence of appraisers.
  
  The guidance is headed in the right direction and is aligned with many of the concerns discussed at NAHB’s summits — including open communication and the need for a process to contest an inaccurate appraisal.
  
  There has been general agreement among industry stakeholders participating in the summits that a sales contract contains critical information about the real estate transaction — such as the scope of work, upgrades and more — and should be made available so the appraiser can use it. The interim final rule does not preclude the sharing of the sales contract with the appraiser.
  
• Appraiser qualifications
  
  NAHB discussions have increased awareness of the need for appraisers of new homes to have sufficient education and experience.
  
  In a letter to the Appraisal Qualifications Board commenting on proposed revisions to appraiser qualifications that are expected to become effective around the start of 2015, NAHB wrote that, “It is necessary that an appraiser of new construction make every effort to obtain comprehensive information on the subject property — including lot values, custom features, upgrades and energy efficiency data. A new construction appraisal requires the appraiser to have the ability to read plans, review the materials description lists and evaluate the builder’s contract and any other special additions.”
  
  NAHB said that minimum educational requirements for appraisers should be set for lot values and building costs — including those for green building and other evolving new construction techniques.
  
• Appraisal workout guidance
  In both federal banking regulation and H.R. 1755 — the Home Construction Lending Regulatory Improvement Act of 2011 — NAHB has focused on the importance of appraisals in enabling creditworthy borrowers of acquisition, development and construction loans to have their loans renewed or restructured.
  
  NAHB has been working on the regulatory front so that builders can benefit from guidance that enables commercial property lenders in their collateral assessment for credit risk grading to utilize an “as stabilized” market value — or prospective market value if there are plans to provide the resources to complete the project — instead of an “as is” market value.
  
• Limitations on new-home sales information
  
  Because new-home sales are not reported to local multiple listing services in many areas, NAHB has encouraged builders and home builders associations to maintain records on new home sales in a format provided by NAHB that appraisers can easily use as comparables.
  
  The format suggested by NAHB would capture information similar to what is in the “comparables” section on page two of the Uniform Residential Appraisal Report, Form 1004.

With the goal of improving the accuracy of new-home appraisals to achieve greater long-term stability in home valuations, NAHB is pursuing a multi-faceted work plan through the end of 2012.

As part of that agenda, the association plans to meet with key appraisal and lending organizations; pursue stronger appraiser qualifications and licensing requirements; assist in the development of data collection on new homes — including Fannie Mae and Freddie Mac’s Uniform Appraisal Dataset; and improve the licensing, oversight and appeals processes of the states.

For more information, email Steve Linville at NAHB, or call him at 800-368-5242 x8597.

Article reprinted with permission from the NAHB

Senate Moves to Reinstate Higher Conforming Loan Limits

In an important victory for NAHB, the Senate on Oct. 20 approved an amendment to an appropriations bill offered by Sens. Bob Menendez (D-N.J.) and Johnny Isakson (R-Ga.) to reinstate for another two years the higher loan limits for Fannie Mae, Freddie Mac and the Federal Housing Administration that expired on Sept. 30.

The vote was 60 to 38, just meeting the necessary 60-vote threshold required for passage under Senate rules.

The appropriations bill includes spending for the Department of Housing and Urban Development and other federal agencies.

NAHB has been aggressively lobbying for the Menendez-Isakson amendment directly on Capitol Hill and through its grassroots membership.

A “key vote” letter was sent to members of the Senate on Oct. 19 urging them to support the amendment to spending bill H.R. 2112 to temporarily restore the higher conforming loan limits.

The letter noted that the current lower loan limits will “further restrict overall mortgage liquidity in the marketplace and place further downward pressure on home prices. Restoring the higher loan limits will provide home owners and home buyers with safe and affordable financing while providing a much-needed boost to housing markets all around the country.”

To build support for the amendment, NAHB also sent out a BuilderLink Alert notifying association members that the Senate might consider a measure to reinstate the higher conforming loan limits.

Members were urged to contact their senators and call on them to support the Menendez-Isakson amendment.

Effective on Oct. 1, the loan limits reverted to the lower levels for high-cost areas established under the Housing and Economic Recovery Act of 2008. The national ceiling for mortgages securitized by Fannie Mae and Freddie Mac or insured by the FHA dropped from $729,750 to $625,500 and the formula for establishing area loan limits became more restrictive, producing decreases for areas in addition to those currently bound by the national ceiling.

A recent NAHB study found that allowing the limits to revert to 2008 levels would make millions of home purchases ineligible for Fannie Mae, Freddie Mac and FHA funding and require them to be financed with higher mortgages interest rates, fees and downpayments and more stringent credit standards.

After passage of the Menendez-Isakson amendment, NAHB Chairman Bob Nielsen issued a statementcommending the Senate action and noting that “the 60-to-38 vote demonstrates bipartisan support for pro-housing policies that will help our industry to create jobs and spur economic growth.”

He also called on Congress to move soon to ensure that this measure is enacted into law.

“Otherwise,” said Nielsen, “the current drop in mortgage loan limits will reduce housing demand and place downward pressure on home prices in major markets. This will exacerbate the current housing downturn, trigger more foreclosures, impede job growth and endanger the fragile economic recovery.” 

As the appropriations process moves forward, NAHB will turn its focus to preserving the loan limits extension, among other priorities, in the HUD appropriations bill.

To view the legislation, click here and type bill number H.R. 2112 in the box in the center screen.

For more information, email Scott Meyer at NAHB, or call him at 800-368-5242 x8144.

This Article reposted with permission from the NAHB.