From the desk of Daria Dudzinski, NAR Political Representative
President Biden Signs Executive Order on Artificial Intelligence
President Biden signed an executive order(link is external) (EO) on "Safe, Secure, and Trustworthy Artificial Intelligence." Please see the "fact sheet(link is external)" about the executive order.
The order invokes the Defense Production Act, and requires that companies developing any foundation model that poses a serious risk to national security, national economic security or national public health and safety must notify the federal government when training the model, and must share the results of red-team safety tests.
The order directs the Department of Commerce to develop guidance for content authentication and watermarking to clearly label AI-generated content.
The President calls on Congress to pass bipartisan data privacy legislation to protect all Americans.
The order acknowledges that uses of artificial intelligence (AI) can lead to and deepen discrimination, bias, and other abuses in justice, health care, and housing. The President directed the Department of Justice and federal civil rights offices to prevent and address discrimination in the use of automated systems, including algorithmic discrimination, and to improve external stakeholder engagement to promote public awareness of potential discriminatory uses and effects of AI.
Executive orders are statements of administration policy and do not have the force of law. Rather these statements direct agencies to consider actions to the extent allowed under existing statutory authorities and may prompt federal agencies to propose draft regulations that could have an impact on the use of AI in real estate. We’ll keep you posted.
White House Fact Sheet(link is external)
Executive Order(link is external)
White House Announcement on Commercial Conversions
On Friday, October 27, the White House announced its Action to Create More Affordable Housing by Converting Commercial Properties to Residential Use(link is external), building upon its Housing Supply Action Plan(link is external) released in 2022. The announcement includes new proposals and guidance for states, localities, and developers to repurpose underutilized commercial properties into affordable housing, and highlights existing tax credits and programs that can be leveraged to reduce costs and improve energy efficiency. These include:
- Releasing a Commercial to Residential Federal Resources Guidebook with information on the more than 20 federal programs that can be used to support commercial-to-residential conversions;
- New guidance from the Department of Transportation on lending programs to support transit-oriented development projects which increase affordable housing and reduce emissions;
- Updated guidelines on using the Community Development Block Grant (CDBG) fund to boost housing supply, including converting commercial properties to residential and mixed-use developments;
- Promoting the sale of surplus federal properties that could potentially be redeveloped for residential use;
- A Department of Energy Toolkit on how achieve zero emissions in conversions and using Inflation Reduction Act programs and credits to bring more capital to the conversion;
- Information from the Treasury Department on tax incentives for builders of multifamily housing.
In addition to these actions, the White House is working with states, localities, and the private sector to support this goal, collecting information on resources for commercial conversions, highlighting successful programs, and building policy proposals that can be adopted by localities interested in pursuing such conversions.
NAR has long supported commercial real estate adaptive reuse policies as one way to ease the affordable housing shortage and has discussed this with the White House and policymakers in the administration and Congress. The COVID-19 pandemic created new trends in commercial real estate usage, especially office and retail spaces. The increase in underutilized commercial real estate combined with the great need to develop more housing – especially affordable – in the country presents a unique opportunity, but costs and challenges associated with such projects have kept this solution from taking off. By drawing attention to this proposal and highlighting resources as well as collecting information and bringing together experts at the state and local level, the White House Action is an important step in promoting commercial to residential conversions. In addition to this, NAR supports H.R. 419, the Revitalizing Downtowns Act, which would provide a tax credit for the conversion of certain underutilized office buildings into affordable housing.
Read the White House Action to Create More Affordable Housing by Converting Commercial Properties to Residential Use(link is external).
FinCEN Renews and Expands Geographic Targeting Orders (GTOs)
The Financial Crimes Enforcement Network (FinCEN), a bureau within the Treasury Department, recently announced the renewal and expansion of its Geographic Targeting Orders (GTOs), which impose reporting requirements on U.S. title companies to identify the natural persons behind companies used in non-financed purchased of residential real estate. FinCEN has renewed the GTOs every six months since 2016. The recent GTO is effective beginning October 22, 2023, until April 18, 2024.
The following jurisdictions are covered by the GTO: Boston; Chicago; Dallas-Fort Worth; Houston; Laredo; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; Seattle; Denver; the District of Columbia, Maryland, and Northern Virginia (DMV) area; as well as the City and County of Baltimore, the Counties of Fairfield and Litchfield, Connecticut, and the Hawaiian islands of Honolulu, Maui, Hawaii, and Kauai.
The GTO also expands the covered jurisdictions to also include counties of Bristol, Essex, Norfolk, and Plymouth in Massachusetts; the counties of Hillsborough, Pasco, Pinellas, Manatee, Sarasota, Charlotte, Lee, and Collier in Florida; and the county of Travis in Texas.
Learn more about the current order(link is external).
NAR Advocates for Worker Classification Clarity
NAR recently submitted a letter to the House Small Business Committee(link is external) for a hearing examining the rulemaking effects out of the U.S. Department of Labor. The Department of Labor (DOL) has jurisdiction over employment opportunities for workers across the country and its policies impact all industries, including the professionals in the real estate market. In the letter, NAR advocated for clarity and consistency from policymakers in an effort to minimize disruption and uncertainty around whether a worker is classified as an employee or an independent contractor. The letter also explains the benefits of the bipartisan legislation (H.R. 5419, the “Direct Seller and Real Estate Agent Harmonization Act”) that incorporates the Internal Revenue Code's statutory protection (26 U.S.C. §3508) for qualified real estate professionals as non-employees into the Fair Labor Standards Act (FLSA). DOL is currently undergoing an FLSA rulemaking examining worker classification and NAR has advocated for the same IRC recognition in that regulation.
Final Updated Community Reinvestment Act Rule Adopted
The Federal Reserve (Fed), Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) formally adopted changes(link is external) to modernize the Community Reinvestment Act (CRA). The new rules include several changes that were championed by NAR as adopted in NAR’s Community Reinvestment Act Modernization policy(link is external). The new rules must be adopted by January 1st of 2026.
The CRA applies only to depository banks and not mortgage lenders. Banks are evaluated on their ability to meet their CRA obligations each year and it affects their ability to merge as well as media reports and thus their value among other things.
The final rule was developed cooperatively among the three regulators and is less calculation dependent than a draft adopted in 2020 by the OCC before being subsequently rescinded. It was viewed as too complex.
The new rule makes several significant changes that align with NAR policy including:
- Expands the assessment to include banks’ activities nationwide and not just in the areas where they take deposits. This includes online business.
- Looks at retail lending, retail services, community development financing and community development servicing.
- Expands the number of metrics to evaluate performance.
- Updates asset size thresholds for small, intermediate, and large banks to account for changes in the banking industry:
- (1) small banks: <$600M (from <$376M);
- (2) intermediate banks: $600M–<$2B (from $376M–$1.503B); and
- (3) large banks: ≥$2B (from ≥$1.503B), adjusted annually for inflation.
- Utilizes community and market benchmarks that reflect differences in local conditions.
Administration Announces Updates for Access to Homeownership
Today, the White House released a series of announcements aimed at expanding access to homeownership and helping homeowners struggling financially to remain in their homes. Some of the items in the announcement represent immediate changes to federal programs, while others are the administration’s commitments to further examine policies and requests for legislators to enact items the President proposed in his budget submitted to Congress in March of this year.
Specifically, the White House calls on Congress to act on the President’s budget proposals that would create a federal down payment assistance program and build and rehabilitate homes already on the market. The rollout of these policy initiatives also follows up on actions taken throughout the President’s term that expand access to homeownership, including a reduction in the Federal Housing Administration’s (FHA) mortgage insurance premium and the use of positive rental payments in the absence of detailed credit histories, both of which are issues championed by the National Association of REALTORS® (NAR).
The President’s announcement includes several positive policy updates the administration is taking or planning to accomplish in the near future. Specifically, this includes:
- Updates to FHA’s policies on Accessory Dwelling Units (ADUs). Under this change, buyers will be allowed to use actual or potential rental income of an ADU when qualifying for an FHA-insured loan. FHA buyers can now take advantage of this change by purchasing homes with an ADU, add an ADU to their existing property, or build homes with an ADU attached to it. NAR has been a strong supporter in the potential of ADUs to create additional housing inventory and more opportunities for homeowners.
- A commitment to continue working on FHA’s 203(k) Rehabilitation Mortgage Insurance Program. This includes examining the funds available to borrowers using 203(k) loans and time requirements for completion. NAR has advocated on this issue to FHA to create resources for buyers using FHA loans to expand a segment of the housing inventory and rehabilitate the existing housing supply.
- Increased funding to nine Native American Community Development Institutions. The U.S. Department of Agriculture (USDA) is awarding $9 million through a relending demonstration program that provides capital to Native Community Development Financial Institutions to be used for low and very-low-income families on tribal lands.
- Opportunities to assist homeowners remain in their homes. The Consumer Financial Protection Bureau (CFPB) is reforming current rules to help homeowners who are struggling to make payments on their mortgage, as a result of success of these programs seen during the COVID-19 pandemic. Simultaneously, the Department of Veterans Affairs (VA) will create a new home retention program that provides relief to borrowers in need.
- Expanded eligibility for “rep and warrant” relief. The Federal Housing Finance Agency (FHFA) is updating the treatment of single-family mortgages backed by the Government-Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac. Under the new policies, borrowers who elected a COVID-19 forbearance will be treated similarly to loans where borrowers obtained forbearance as a result of a natural disaster. These loans will remain eligible for “rep and warrant” relief based on payment history over the first 36 months following the origination of the loan.
NAR appreciates the administration’s continued efforts to address homeownership access and increase the housing supply. We will continue to work with the administration and respective federal agencies to ensure that responsible homeownership and the housing inventory remain a top priority.
Read the President’s full statement(link is external).
NAR and Partners Urge Fed to Address Long-term Issues in Mortgage Market
NAR joined CHLA and ICBA in urging the NEC and Treasury(link is external) along with the Fed and FHFA to address short-term issues that have led to unnecessarily high rates. NAR also urged action to support long-term liquidity in MBS market. This effort is the second this week to address the sharp increase in mortgage rates.
The gap between the 30-year fixed rate mortgage and 10-year Treasury is normally about 1.5%. Currently it is now closer to 3%. This 1.5% extra gap reflects inefficiencies in the market, but in particular the Fed's attempt to reduce its holding of MBS when there are few/no buyers to replace it. This decline demand causes rates to go up relative to Treasuries.
Simultaneously several factors have reduced demand for MBS that could be a long-term issue. Under GSE reform, the GSEs' portfolios are limited to minimal sizes. Thus, a second major source of demand is gone. Compounding this is that banks tend not to want to buy mortgages or MBS in rising rate environments and that some are actually selling them due to financial strain (e.g. Silicon Valley Bank). All this has resulted in drain on demand is pressing up on mortgage rates relative to Treasuries.