Additional Regulatory/Legal Maneuvers
In my piece yesterday on the upswell of regulation and litigation likely to begin impacting the residential real estate business, I neglected to mention a couple of news items from the Wall Street Journal this past week that had initially prompted me to look into the matter. The piece was just getting too long...my apologies. Very quickly here are the other items of note.
Federal Reserve Governor Randall Kroszner, who runs the Fed commitees that formulate policy on bank regulation and consumer protection, is said to be in danger of not being re-appointed, due to his de-regulatory bent. He has been criticized by Senate Banking Committee Chairman Chris Dodd for his role in new mortgage regulations. Kroszner will give two speeches on the Fed's proposed new mortgage regulations next week.
Last month Related Group of Florida filed 16 suits in Miami-Dade County seeking the forfeiture of commissions paid to brokers who sold luxury condominiums it built, after buyers defaulted. If condo sponsors can get away with this sort of thing, brokers are going to have very little incentive to pre-sell new developments, in my opinion.
A former Countrywide employee who worked as a regional VP in the Houston office of a JV between KB Homes and Countrywide alleges that he was fired for raising concerns about questionable lending practices. These included personnel helping borrowers submit loan applications with false income amounts and giving unconditional approval of 10% of the backlog of home loans so that KB Home could start building the homes with contracts in hand. The State of Florida's Attorney General Bill McCollumhas has already issued a subpoena to Countrywide Credit seeking information on sales practices, loan origination standards and fees charged in its foreclosure process. Expect much tougher lending standards and laws that demand that they are adhered to.
Governor Eliot Spitzer is looking to close a tax loophole that lets out-of-towners and foreigners who have owned limited partnership interests in New York property to avoid paying state income taxes on the profits earned when they sold those interests. As a result of the fiscal pressures that states face due to the decline in real estate related tax revenue, expect more initiatives of this nature. This instance in particular may not be helpful to the New York City real estate market.
Disagreement has emerged as to whether New York Attorney General Andrew Cuomo or the Office of Federal Housing Enterprise Oversight (the official regulator of Fannie Mae and Freddie Mac) should be investigating allegations of fraudulent appraisals and mortgage fraud.
You get the point. Expect many State Attorneys General to get into the act of investigating and then persecuting various members of the real estate food chain. Congressmen will be strong arming regulators to get tough. New rules and laws will be promulgated. Developers will sue brokers, buyers will sue developers and brokers. The whole business will get tougher and less profitable at the same time that consumer interest wanes.....same as it ever was.