Every year, REALTORS^® from throughout Wisconsin travel to Washington, D.C., as part of the National Association of REALTORS^®’ (NAR) annual lobbying day. The purpose of the trip is to meet with members of the Wisconsin congressional delegation to discuss a variety of pending federal legislative issues important to the Wisconsin real estate industry. REALTORS^® provide specific examples and data about how the issues or legislation impact homeowners, property owners or the real estate market in Wisconsin. In the past, issues have included patent trolls, flood insurance, foreclosures, secondary mortgage market, appraisals and environmental regulations. This year, approximately 50 Wisconsin REALTORS^® met with members of Congress to discuss the following issues.

Private flood insurance options

Legislation: H.R. 2901, known as the Flood Insurance Market Parity and Modernization Act, lays the groundwork for creating a private market flood insurance program as an alternative to the National Flood Insurance Program (NFIP). Specifically, the legislation clarifies that property owners may satisfy the mandatory purchase requirement with either an NFIP policy or private market coverage that meets state law. In addition, the legislation ensures that consumers can move freely from the NFIP product to private coverage without penalty, and that the NFIP remains a safety net if private insurance options are gone or become too expensive after major floods. 

Background: Flood insurance is required for any federally insured mortgage related to property located in a floodplain. Because flood insurance is required for many transactions, an affordable and effective flood insurance product is critical to maintaining a vibrant housing market in Wisconsin. This is evidenced by the fact that Wisconsin has approximately 15,854 federally backed flood insurance policies in place at a value of $2.82 billion.¹ Moreover, approximately 547 communities — which include counties, cities and villages — in Wisconsin participate in the NFIP by adopting and enforcing floodplain management ordinances to reduce future flood damage.²

Why the legislation is necessary: Currently, the NFIP is the only program offering flood insurance in most states. Because its annual budget is approximately $30 billion, the program has been under increased scrutiny from Congress over the last decade. In 2012, the funding for the program lapsed for a short period of time, resulting in the termination of thousands of real estate transactions that were dependent on flood insurance. Moreover, due to significant hurricane and flood damage in recent years, the NFIP is under even greater financial pressure, and the future of the NFIP remains unclear. 

By removing barriers at the federal level to a private insurance market, H.R. 2901 is an incremental step to providing property owners with additional flood insurance options. Currently, Wisconsin does not have a private flood insurance market. However, the WRA has met with Wisconsin’s insurance commissioner and is beginning to put the pieces in place to create one, including removing any regulatory barriers that would prevent private insurers from offering a flood insurance product in Wisconsin.

Open access to condominiums and other housing reforms

Legislation: H.R. 3700, known as the Housing Opportunity through Modernization Act, makes much-needed reforms to the Federal Housing Administration (FHA) condominium loan program and other federal housing programs. 

Background: FHA loans continue to be an important part of Wisconsin’s marketplace. FHA loans are used often by first-time homebuyers and others who don’t have enough money saved to meet conventional down-payment requirements. Moreover, with increased housing prices, the number of buyers using FHA loans also has increased. In the first quarter of 2016, 15.2 percent of all sales nationally were to FHA buyers; this is up from 14.8 percent in the first quarter of 2015 and 13.5 percent for the same period in 2014. 

The current FHA rules, however, are overly restrictive and serve as a barrier to homeownership for many would-be condo purchasers in Wisconsin. Some of the more common complaints about the program include:

• At least 50 percent of condo units must be owner-occupied.
• The process for recertifying condos is overly lengthy.
• No more than 25 percent of the property may consist of commercial property.
• Private transfer fees are prohibited, even those that benefit the homeowner.

Why the legislation is necessary: The proposed changes in H.R. 3700 would address these concerns and make the FHA a more effective financing tool to help would-be condo buyers become homeowners.

GSE fees: raiding segregated accounts and raising the cost of homeownership

Legislation: Two pieces of legislation have been introduced to prevent the use of guarantee fees (G-fees) for nonhousing-related purposes:

• S. 752 would prohibit the use of G-fees to offset federal spending.
• H.R. 4893, known as the Risk Management and Homeownership Stability Act, would establish a scorekeeping rule to ensure that G-fees are not used to offset provisions that increase the deficit. 

Background: G-fees are charged by Freddie and Fannie to lenders for bundling, selling and guaranteeing the payment of principal and interest on their mortgage-backed securities. These fees are passed on to homeowners in the form of higher mortgage rates. Most of the G-fee covers projected credit losses from borrower defaults over the life of the loan, administrative costs and a return on capital.
In recent years, some members have tried to raid the G-fund and use the money to reduce other government spending and help reduce the federal deficit. Most recently, G-fee revenues were included in the federal transportation funding bill to help pay for highways and other transportation infrastructure. This provision was eventually removed from the legislation before passage. 

Why the legislation is necessary: Increasing the cost of G-fees will increase the cost of mortgage credit and will make it more difficult for potential homeowners to purchase or refinance a home.

Tom Larson is Senior Vice President of Legal and Public Affairs for the WRA.

1 “Flood Insurance: National Flood Insurance Program,” Insurance Information Institute: www.iii.org/fact-statistic/flood-insurance.
2 “Community Status Book Report — Wisconsin: Communities Participating in the National Flood Program (PDF)” Federal Emergency Management Agency: www.fema.gov/cis/WI.pdf.