2006 Year-End Federal Policy Agenda Highlights
American Society of Home Inspectors
Thursday, December 14, 2006
Special Report: The Democratic Takeover of Congress
Impact on ASHI Members’ Interests
**AT THIS WRITING, THE HEALTH STATUS OF SEN. TIM JOHNSON (D-SD) IS IN DOUBT. JOHNSON’S STATUS WILL HAVE A MAJOR IMPACT ON THE LEADERSHIP IN THE SENATE AND THE INTERPLAY BETWEEN THE HOUSE AND THE SENATE ON HOUSING ISSUES/OTHER ISSUES AFFECTING THE BUSINESS INTERESTS OF ASHI MEMBERS. THIS COMMENTARY IS DRAFTED ASSUMING THAT SEN. JOHNSON WILL CONTINUE TO HOLD HIS SEAT IN THE SENATE, THEREBY MAINTAINING DEMOCRATIC CONTROL OF THE SENATE.
The Democrats will assume control of the House and Senate, and all the committees and subcommittees, when the 110th Congress convenes in early January. Democrats are firming up their choices to lead the housing and small business committees whose agendas will have an important impact on ASHI members. The Democrats have not officially declared their policy agenda and list of issues, but we can extrapolate based on the records of members most likely to lead the committees of jurisdiction, their press releases and campaign speeches, and our experience working with the Democratic side of the aisle.
On the House side, Rep. Barney Frank (D-MA) and Rep. Maxine Waters (D-CA), who will chair the committee and subcommittee of jurisdiction, are among the most liberal members in Congress. Mr. Frank is respected as one of the most intelligent, articulate and formidable Members of the House, a master of debate and parliamentary procedure. With his chairmanship of the Financial Services Committee, under which the Housing Subcommittee resides, ASHI should expect a much more activist stance on both housing legislation and HUD oversight than we have seen in years. Frank will be the driving force. The Bush administration and the congressional Republicans have steadfastly marginalized housing as a priority; Frank will reverse that trend immediately.
ASHI should expect considerable House action to attack abusive lending practices and mortgage fraud. This action will be designed to embrace the value of consumer protection more strongly than in previous congresses. ASHI will have an opportunity to drape voluntary home inspection in the mantle of consumer protection as a means for helping home buyers protect themselves from all manner of homebuying pitfalls, including fraud and misrepresentation.
ASHI will be able to further capitalize on this theme by recommending to Members of Congress that they continue to pressure HUD to fully promote the use of voluntary consumer protection methods such as home inspections. ASHI is already sending the signal to the House staff that consumer protection should be a preferred theme and rationale in the housing agenda, and that voluntary home inspections should be considered primary consumer protection tools. ASHI continues to seek government endorsement of voluntary home inspections and to deliver that message to millions of prospective homebuyers who might otherwise never consider home inspection. Further, we may see investigations and oversight activity on housing issues that will allow ASHI an opportunity to offer testimony promoting the importance of voluntary home inspections.
We have less indication of what the Senate approach on housing issues will be. We do expect a major player in the Senate to be Sen. Jack Reed (D-RI), who has indicated his interest in attacking predatory lending. Also, Sen. Barack Obama (D-IL) has signaled his interest in legislation to avert mortgage fraud.
We don't know what position the Democrats will take on certain specific issues like the ban on banks in realty and RESPA reform. Both issues are hot potatoes for the homes sales industry regardless of which party holds power. This fact, plus the sheer time pressure on the Democrats to reorganize the House, militates against an issue will so many layers as RESPA reform. Conversely, highly controversial issues are sometimes best handled during divided government so that neither party will be asymmetrically targeted for blame in case a bold move becomes unpopular. Our best estimate is that RESPA reform will not proceed, but that could change with one announcement from a chairman.
On the appropriations side, we should expect to see increased funding for HUD operations, housing programs and other mechanisms to help individuals obtain housing. Though much Democratic effort will be expended to increase low-income rental housing assistance, ASHI will be a voice advocating no drift away from the values of home ownership. ASHI can help pressure the Democratic leadership to avoid swinging the pendulum too far in favor of rental assistance such home ownership is ignored.
Regarding small business issues, ASHI has built a good relationship with Rep. Nydia Velazquez (D-NY), who is slated to assume the Chairmanship of the House Small Business Committee. As such, ASHI should expect a receptive audience on small business issues that affect the profitability of ASHI members. Further, ASHI will work with Ms. Velazquez and her staff on the Congressional Hispanic Caucus to persuade Members of the Caucus to use their franking privileges to recommend voluntary home inspections to their 15 million+ constituents.
We recognize that most ASHI members are small businesses. Some small business issues favored by ASHI are dead under a Democratic Congress. First and foremost, the Association Health Plans/Small Business Health Plans legislation has no chance in the 110th Congress. Permanent repeal of the death tax is not possible. We may see some action on Social Security reform; an issue that might be included in a Social Security package is the tax rate paid for Medicare and Social Security.
The Democrats may exploit a populist theme and attack “corporate America.” ASHI should expect to partner on small business coalitions to shield small businesses/self employed/Sub S/LLC entities by exempting them from punitive measures aimed at large corporations.
Politically, elections are won and lost in every two-year election cycle. It is part of political life that as older actors leave the scene, replaced by new ones, we are constantly making new relationships and introducing ASHI to new members. It is less frequent to see leadership changes, but in any case we will adjust our InspectPAC recommendations to reflect the shift in power. We anticipated a possible change on the Hill, so InpectPAC kept its campaign resources largely in the bank to await the outcome of this particularly dynamic election cycle. InspectPAC is positioned to support the new pro-small business, pro-home inspection leaders who emerge and share the interests of ASHI members. The issues will change somewhat as will the Members and staff, but on the whole the mission and message for ASHI does not need a dramatic modification change in response to the election result.
ASHI Briefs Congressional Hispanic Caucus on ASHI Materials for Hispanic Clients, Touts Home Inspection:
In late June of 2006, ASHI was invited to present to a meeting of the Congressional Hispanic Caucus to advise the Caucus on ASHI’s new initiative to serve the Hispanic community by translating some of its key documents into Spanish.
More than twenty members of the Caucus, and their staff, were in attendance. ASHI briefed the Caucus on the key elements of home inspection and how ASHI works to protect the integrity and professionalism of the home inspection industry.
ASHI further recommended that members of Congress could and should promote the concept of obtaining voluntary home inspections among their constituents by including this message in their free mailings to their constituents. ASHI hopes to work with Members and staff after the midterm elections to craft pre-home inspection messages for use byrepresentatives in communicating with their constituents. Inasmuch as each congressional district may hold circa 650,000 individuals, this would constitute considerable free media and third-party endorsement for obtaining home inspections, targeted to a growing sector of the market that can benefit greatly from home inspections.
ASHI Meets with HUD Staff in Washington, D.C.:
On June 29, 2006, ASHI representatives met with HUD staff to talk about a range of issues affecting how HUD communicates its messages on home inspection. The meeting is the latest in what has become a periodic confab between the agency and ASHI to hone the government message on home inspection.
Issues discussed included proposed changes to the HUD Form 92564-cn, better known as “For Your Protection – Get a Home Inspection”, the timing for the delivery of the document to homebuyers, and future appearance changes to make the document unavoidable in the confused home purchasing process (the suggestions led to the development of public comments which will be summarized below). Further, HUD staff briefed the ASHI representatives on the use of ASHI materials in training HUD housing counselors.
ASHI Submits Comments for Record to White House Office of Management and Budget, HUD:
On July 7, 2006, ASHI submitted formal comments to the White House Office of Management and Budget and HUD strongly supports retention of the “signature and date” language on HUD’s “For Your Protection, Get a Home Inspection” document. The language l requires a homebuyer to stop and think about obtaining a home inspection, sign the document and date it. In the alternative, ASHI suggested that, at the least, if the duty to deliver the document is to become that of the lender, and the time at which the document will be delivered is to be at the mortgage application or pre-approval stage, then ASHI would agree that the language needs to be modified to fit this different circumstance.
In any case, ASHI sees great value, both to the lender and the homebuyer, in requiring a modified version of the “signature and date” material, which provides a means for both parties to verify that the document has indeed been delivered.
ASHI recommended 1) that lenders be obligated to present the form at the mortgage application or pre-approval meeting; 2) the best process to ensure that all interests are served would be to require the lender to deliver the document to the homebuyer at the mortgage application or the pre-approval, obtain the signature and date, retain a copy for the mortgage, and give the original to the homebuyer for homebuyer’s use as he/she continues in the home buying process; 3) that if the lender is to be obligated to deliver the document at the mortgage application or pre-approval stage, the modified “signature and date” provision should still provide for some manner of signature and date; 4) that HUD should expound upon its pro-home inspection message to include a recommendation on timing, that the sooner a homebuyer is affirmatively urged to consider choosing a voluntary home inspection, the better; 5) that the form be made remarkable in appearance by techniques such as using a brightly-colored border and graphics designed to ensure that in the cascade of documents presented at the time of loan application; 6) that HUD adopt a policy requiring lenders offering all types of mortgages, FHA and non-FHA, to deliver Form 92564-cn to all homebuyers; 7) that the updated version Form 92564-cn be translated into Spanish and made widely available for use by Hispanic-speaking homebuyers.
In a curious move which impact ASHI is still assessing, HUD issued the following Notice for FHA Lenders:
Effective immediately: If form HUD-92564-CN, "For Your Protection: Get a Home Inspection" is incorporated or if the language is stated within the executed sales agreement in its entirety, it is not necessary to provide the homebuyer a separate copy of the form HUD-92564-CN.
ASHI Invited to Washington DC Panel to Promote Home Ownership:
In early October of 2006, ASHI was invited to participate on a panel convened by Cong. Nydia Velazquez (D-NY) to discuss problems of home purchasing by Hispanics and industry best practices to help overcome such problems. The Panel included representatives of realtors, title companies, the legal community and Hispanic community activists. It was a high-profile panel representing recognized leaders in home sales industries, and ASHI was honored to be invited to discuss the role of home inspectors in this process. Frank Lesh spoke on behalf of ASHI and received strong support for home inspection from Cong. Velazquez, who admonished attendees to use their media contacts to promote the need for obtaining home inspections. ASHI was pleased as the sole representative of the home inspection profession invited to speak.
ASHI urges federal agency and congressional support to increase the voluntary use of home inspections by homebuyers, using federal assets to improve education and communication on home inspection to homebuyers:
In 2005, ASHI met with U.S Senate staff, a key congresswoman in the House, HUD and VA to discuss key documents that may constitute the only information many homebuyers will receive regarding home inspections. These efforts have been fruitful in 2006.
A. HUD has asked for ASHI materials to be used in training HUD inspectors, and is using those documents today. ASHI has worked hard to establish itself as a professional, reliable and reasonable source of information on all matters relating to home inspection. As a byproduct of these efforts, HUD has agreed that it needs to update and upgrade the materials it uses to train future HUD inspectors. With that in mind, HUD asked ASHI for such materials late in 2005. ASHI provided them. HUD has now incorporated the materials in its training modules, based on ASHI input. HUD is also providing guidance materials to its trainers to help them advise homebuyers how best to hire home inspectors based on professionalism that is a hallmark of ASHI home inspectors. HUD’s slideshow training module, “Ten Questions the Homebuyer Should Ask…” is offered in toto from ASHI.
B. In addition, at ASHI request, HUD has updated its website to include a specific page on home inspection, and provides a link to the ASHI website. Considering the hundreds of thousands of homebuyers who will access the HUD website, we look forward to much greater penetration of ASHI materials, beliefs and values to be made available due to a new portal for access on the HUD website.
C. Working in concert with ASHI, HUD has made important changes to its document “For Your Protection – Get a Home Inspection” to make the messages on home inspection clearer and more useful to homebuyers. Further, HUD has included a signature line on which homebuyers must affirm that they have made a knowing choice whether to obtain a home inspection. ASHI applauds HUD’s changes and its willingness to work cooperatively to improve communications to homebuyers. We look forward to future discussions to make improvements to other documents. ASHI requests Capitol Hill support for the ASHI-HUD dialogue and future modifications to promote the voluntary use of home inspections.
D. HUD has abandoned the VC Sheet/Notice to Lender that looked like a home inspection report, confusion which dissuaded homebuyers from obtaining home inspections. The VC Sheet provided a checklist for appraisals that could easily be mistaken for a makeshift home inspection. This was a serious factor in dissuading homebuyers from obtaining home inspections. Homebuyers perceived the very comprehensive VC Sheet appraisal checklists as de facto home inspections, which negated the need to obtain true home inspections. ASHI lobbied hard on this problem and targeted it during the General Accounting Office study requested by ASHI. GAO confirmed ASHI’s argument, and HUD eventually acknowledged this key weakness in its letter to ASHI and AI dated 8/7/02. We should regard HUD’s abandonment of the VC Sheet/Notice to Lender as a clear victory of the consistent lobbying pressure brought by ASHI to eliminate this confusing series of government documents that compete with ASHI members’ message on home inspection.
In addition, ASHI continues to pressure HUD to improve its message that to homebuyers that home inspections and appraisals are utterly distinct and separate.
E. While the VA Lenders Handbook, Chapt. 13 Lender’s Notice of Value letter contains references urging homebuyers to obtain home inspections, ASHI believes the message can be improved by using direct references to home inspection, informing homebuyers that neither the VA appraisals nor the VA required inspections are home inspections, and reminding homebuyers that it is their responsibility to obtain home inspections if they want them. ASHI further feels that VA could improve its message distribution by developing a separate information sheet on home inspection, converting that page to a web page, and including that page in the Handbook Table of Contents on link to the VA website homepage. Several of the conventions adopted by HUD would serve as a template for VA updates. ASHI seeks Capitol Hill support for the ASHI-VA dialogue and future modifications to promote the voluntary use of home inspections. ASHI’s new dialogue with VA proceeded very well. VA is interested in working with ASHI to improve its home inspection messages and a follow-up meeting to discuss specific details (partnership, website modification, perhaps a new VA circular on voluntary home inspection) is in planning. VA has asked ASHI to provide supporting data to justify a broader and more forceful effort to urge its customers to obtain voluntary home inspections. Further, we anticipate policy shifts in VA that may increase the importance of voluntary home inspections.
F. ASHI’s meetings with Senate Appropriations Committee staff yielded good results quickly. The Senate Appropriations Committee accepted the notion that HUD needs to adopt a stance of educating home buyers on the need for home inspection. The Committee adopted the following report language to accompany the FY 2006 appropriation bill that provides HUD’s funding [excerpt]:
The Committee also is concerned that HUD should assist in the education of potential homebuyers who plan to use FHA mortgage insurance as part of the purchase process. While the requirements for an appraisal are clear, HUD needs to educate homebuyers regarding the value of requiring a home inspection before a purchase is complete. In too many cases, homebuyers waive this option, thus exposing them to unforeseen and unexpected physical deficiencies in the purchased home. This especially is troubling with moderate- and low-income homebuyers who barely have enough funds to close on the house. Without a home inspection, these purchasers may find themselves responsible for such high-cost items as a new roof, furnace or other significant structural liabilities. In these cases, the cost to repair the home and pay for the mortgage may far exceed the financial ability of the homebuyer, thus putting the home at risk of foreclosure.
New Issue on the Horizon:
Tax Withholding on Independent Contractor Fees
The Bush Administration is considering proposals to require tax withholding on contractors’ fees by the individuals and businesses that hire the. This is being portrayed as a means to address the “tax gap” without raising taxes or cutting programs, but would be abhorrent to most independent contractors.
Background: “tax gap” refers to income on which IRS is not collecting tax revenue because it is not being reported. IRS estimates of the tax gap vary in the $300-350 billion range per year. Regardless of the true impact of unreported income on tax revenues, IRS maintain that a large portion of the uncollected amount is attributable to contractors who evade taxes by not reporting much or all of their income.
IRS suggests that a major way to reduce the tax gap is to entities who hire and pay independent contractors to implement mandatory tax withholding (nearly identical to what employers are required to do for their employees) and require the same to report it to IRS.
Someone in the Administration floated a trial balloon on the topic last January by mentioning the concept in the President’s Budget submittal to Congress. Neither the Department of the Treasury or the Office of Management and Budget admit to authorship, but both must have approved the language. It is a clear shot across the bow to get something cleared for the Budget.
The policy appeal in attacking the tax gap is that it is one of the few ways to narrow the federal deficit without increasing taxes or cutting programs. In theory, the feds would merely be collecting taxes that should be collected anyway but aren’t due to illegal tax evasion; the evaders are portrayed as scofflaws who are being brought to live up to their legal responsibilities.
The Democrats are going to be looking for ways to show they can exercise the fiscal responsibility that the Republicans failed to demonstrate. It would make sense that the Democrats might try to use expanded tax withholding of contractor income as an attractive means to bring the Budget closer to balance.
In the 2005 Tax Act, the Senate Finance Committee slipped in a provision that requires government entities that pay contractors to withhold 3% of the money paid. It attracted no attention until after the bill was signed into law. This action is a precursor to a larger attack on tax gap by going after contractors that may be coming soon.
While the notion of collecting taxes may be appealing, the method here is abhorrent. Mandatory tax withholding of contractor income would be extremely disruptive for small businesses in general and the construction industry in particular.
Earlier in 2006, HUD Secretary Alphonso Jackson told some interest groups that HUD may be floating a new RESPA reform proposal at anytime. We have received word that HUD has indeed approached the Office of Management and Budget (OMB) to restart formal talks about an Administration proposal. HUD is not floating any details as to the scope or substance of what it might propose in a new proposed regulation.
There has been little news to support or refute the rumor since the spring of 2006. But this intelligence needs to be taken seriously even though it seems to run counter to the indications of the political landscape, which would point against a near-term proposal. Jackson is still stinging from the criticism he took in summer 2005 when his series of public meeting “listening sessions” produced practically no movement in favor of a consensus RESPA reform package. ASHI’s stance be that of watchful waiting, standing ready to fight bundling proposals and other mechanisms that might diminish the importance of home inspectors or threaten their independence.
ASHI was invited to and participated in three 2005 HUD/SBA meetings to present its views the home inspectors should be protected from the threat of bundling and to retain the independence of home inspectors in any new RESPA proposal. The time frame for a new RESPA package is uncertain. It may not occur prior to the 2006 midterm elections. While HUD insists that no draft has been finalized at this time, it does admit that any proposal will be based, at least in part, on the previous draft. ASHI expects to play a stakeholder role in future HUD meetings on RESPA reform.
Community Development Block Grant Funding
ASHI should expect to see a ramp-up in Community Development Block Grant (CDBG) funding to the states, which increasingly is being used to provide home reconstruction in areas ravaged by natural disasters like Hurricane Katrina. At least one Gulf Coast state, Mississippi, is planning to spend much of its allocation of CDBG funds on rebuilding homes – up to $150,000 each – that were destroyed or damaged by the 2005 hurricanes. This may reflect a trend for CDBG. CDBG is becoming a major means to fund housing reconstruction. $11.5 billion for Louisiana and $5 billion for Mississippi have been appropriated. There is a proposal to create a Katrina Fraud Prevention and Investigation team; it is unclear what the mission would be for the team; it may have a home inspection element, or perhaps one could be added by amendment.
ASHI supports HR1295, the Responsible Lending Act:
HR1295 includes language that would update of the Mortgage Information Booklet mandated under RESPA.
The purpose of the Booklet is to help consumers applying for federally related mortgage loans to understand the nature and costs of real estate settlement services. HUD is required to distribute to all lenders that make federally related mortgage loans, and to homeownership counselors certified under section 106(e) of the Housing and Urban Development Act of 1968. It reflects HUD’s recommendations on home buying.
HR1295 includes a specific provision requiring the new Mortgage Information Booklet to include “An explanation of the nature and purpose of real estate appraisals, including the difference between an appraisal and a home inspection.”
Confusion between appraisals and home inspections is one of the major reasons why homebuyers avoid obtaining bona fide home inspections. In the HUD documents and public affairs announcement have actually contributed to this confusion. ASHI’s lobbying efforts are designed to reverse this situation and persuade HUD and Congress to act as positive forces advocating voluntary home inspections.
The bill was referred to the Subcommittee on Housing and Community Opportunity. It did not pass in the 109th Congress but did gain 39 cosponsors.
Retention of the Home Mortgage Interest Deduction:
ASHI is aware of Administration advisory groups advocating wholesale elimination of popular tax deductions, including the home mortgage interest deduction. The home mortgage interest deduction is a vital factor enabling many Americans to buy home and service their mortgage debt. It is a key consideration in home sales financing and purchasing considerations. ASHI calls upon Members of Congress to show early and unwavering support for the home mortgage interest deduction, and to defeat any effort to eliminate or diminish it.
Federal Response to Katrina/Plans for Future Disasters
Hurricane Katrina and disasters like her can and will cause gigantic disruptions of economic life and thwart the ability of homebuyers to buy and sell homes. Aside from the broad economic impact of disasters, the livelihood of home inspectors can be hard hit by prolonged disruptions in the realty market.
Agencies like HUD and VA need to be poised to provide mortgage relief to ensure that the realty market and the loan cash that drives it will remain fluid and resilient in times of crisis. ASHI is urging HUD and VA to exercise the greatest possible forbearance in driving victims to default or bankruptcy because of Katrina-related delinquencies. HUD appears to be acting vigorously in this regard. After a slow start in which VA indicated it would hold fast to mortgage payment schedules notwithstanding Katrina, we are receiving word that VA is also considering template programs to provide relief, perhaps even debt forgiveness. FNMA, GNMA, and FHLMC are encouraging their lenders to be very lenient as well. ASHI applauds these efforts and urges Congress to keep up the pressure for mortgage relief.
Katrina pointed our severe weaknesses in planning and pre-positioning of emergency goods and services. ASHI has contacted FEMA on behalf of ASHI members who would like to help by providing home inspections. Agency staff have told ASHI that they wish they had more organized means for contacting home inspectors. As FEMA emerges from its overwhelmed condition and can use its Katrina experience to plan for the future, ASHI will encourage FEMA to develop a list of potential home inspector volunteers and a workable means of communication to reach them in time of future crises.
There were serious efforts in the 109th Congress to remove FEMA from the Department of Homeland Security to operate as a separate entity, but those efforts failed.
ASHI Talks with White House on “Crystal Meth”
ASHI members are encountering a new, dangerous circumstance, finding evidence of “crystal meth” laboratories on premises they inspect. Such materials, which are usually evidence of criminal activity, pose a physical danger to home inspectors and a special reporting issue as well.
The White House has begun a new initiative to combat rampant crystal meth production and use.
ASHI has been in contact with the Office of National Drug Control Policy (ONDC) to ascertain whether there is some mechanism by which it can partner with the White House office. One of the lead staffers heading up the effort has indicated that there may be an opening for home inspectors to participate in the effort.
The White House announcement is now on the street. ASHI will examine it to ascertain whether there is a role for ASHI and its members to play in curbing the rampant abuse of this substance, and perhaps help protect home inspectors who happen on crystal meth labs in the course of their inspections.
Zero-Downpayment Bill in Congress
HR3043, the Zero Downpayment Pilot Program Act of 2005, has been introduced in the current Congress. In short, the bill would authorize FHA to offer zero downpayment financing to homebuyers who otherwise demonstrate the capability to make monthly payments, but do not have up-front funds for a downpayment. The pilot program would test the concept on 50,000 first-time homebuyers.
The legislation has wide support in the home sales community. Aside from making home purchases available to a wider market, the new program could help FHA increase its share of the home mortgage market. Inasmuch as ASHI does considerable work with HUD to improve its home inspection documents, it is probably beneficial to ASHI to see more customers using FHA financing – and receiving the FHA materials. The bill has the backing of the Bush Administration. It was put on the House calendar on July 7, 2006 but failed to achieve passage as a free-standing measure prior to adjournment.