CREF Policy Update: July 27, 2023

1. MBA Responds to FSOC Proposed SIFI Designation Guidance

Last Tuesday, MBA submitted comments in response to new proposed interpretive guidance and a revised analytical framework released by the Financial Stability Oversight Council (FSOC) regarding its process for assessing risks to the global financial system and evaluating certain non-bank financial companies for potential designation as systemically-important financial institutions (“SIFIs”) that are subject to enhanced prudential regulation by the Federal Reserve. The new proposals represent a reversal of the “activities-based approach” promulgated during the Trump Administration and set the stage for FSOC to designate non-bank entities more quickly.

• Why it matters: FSOC’s proposals signal a renewed effort by the Biden Administration and federal financial services regulators to target non-bank financial companies. During the Obama Administration, FSOC unsuccessfully attempted to designate four insurance companies as SIFIs.
• What’s next: MBA argues in its letter that FSOC should: 1) consider the costs and benefits of non-bank SIFI designation; 2) first look to the tools of existing regulators to address perceived risks; 3) faithfully adhere to statutory process requirements; and 4) consider whether existing regulations are driving core banking activities outside the banking regulatory perimeter. MBA will continue to engage with the White House, Treasury Department, and FSOC.

For more information, please contact Stephanie Milner at (202) 557-2747.

2. Interagency Proposed Changes to Bank Capital Requirements Expected Next Week

All signs point to the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) voting on Thursday, July 27, on the interagency proposed changes to capital requirements for banks with assets of $100 billion or more. The forthcoming rules would propose the so-called “end game” rules to complete U.S. regulators’ implementation of the Basel III standards and make changes in response to the recent large bank failures. It is expected the changes could collectively result in increased capital requirements at larger banks by 15 to 20 percent – large to enough impact which lines of business banks choose to support.

• Why it matters: According to press reports this week, the proposal may include an increase in residential mortgage capital requirements for large depository banks. This is disconcerting, as large increases in capital standards will likely lead to a shift in where mid-sized and regional banks will focus their core businesses and reduce credit availability for all types of lending, including for single-family, multifamily, and commercial real estate. Such an outcome would directly and negatively impact one of the Biden Administration’s top priorities to improve housing affordability and close the racial homeownership gap. Increasing the risk weighting on mortgage assets could raise the cost and reduce the availability of financing for homes and rental housing at a time when affordability is already stretched, and despite the fact that single-family mortgage performance is incredibly strong, and delinquencies are near record lows. MBA also has concerns about how the capital rules could impact warehouse lending costs/availability and MSR values.
• What’s next: MBA will focus on how these rules, when issued, could impact the housing finance ecosystem, including banks’ participation in the mortgage market as lenders, servicers and providers of warehouse and MSR financing, and will make recommendations to mitigate potential adverse fallout.

For more information, please contact Stephanie Milner at (202) 557-2747 or Fran Mordi at (202) 557-2860.

3. FHFA Issues Notice of Proposed Rulemaking on the Suspended Counterparty Program

The Federal Housing Finance Agency (FHFA) recently issued a Notice of Proposed Rulemaking (NPR) that would amend portions of the Suspended Counterparty Program (SCP) regulation. Specifically, the proposal would allow the suspension of business between FHFA’s regulated entities and counterparties who are found to have committed misconduct in the context of civil enforcement actions or who are found to have committed criminal or civil misconduct in connection with the management or ownership of real property. The rule would also authorize FHFA to immediately and without first issuing a proposed suspension order, suspend business between the regulated entities and counterparties where the misconduct has resulted in debarment, suspension, or limited denial of participation imposed by a federal agency.

• Why it matters: While FHFA hopes this proposal will help to ensure the regulated entities remain safe and sound and are protected from certain business risks, this proposal dramatically expands the scope of the SCP and could have major impacts on the real estate finance industry. MBA is particularly concerned about the effect this will have on companies entering into consent orders.
• What’s next: FHFA invites interested parties to comment on the NPR within 60 days of publication to the Federal Register. Both MBA’s Residential and Commercial policy teams will continue to analyze the proposal in the coming weeks and will work with members to prepare a response.

For more information, please contact Stephanie Milner at (202) 557-2757.

4. House and Senate Appropriations Committees Advance Government Funding Legislation During Markups

This week, the House and Senate Appropriations Committees advanced their respective versions of the Fiscal Year 2024 (FY24) Transportation, Housing and Urban Development (T-HUD) bills. In April, MBA sent a letter to the chairs and ranking members of the full House and Senate Appropriations Committees and T-HUD Subcommittees, highlighting MBA’s views on the real estate finance industry’s priorities. The House is slated to advance individual spending bills at funding levels well below the negotiated limits of the Fiscal Responsibility Act, causing a nearly $2 billion delta between the House and Senate T-HUD bills.

• Why it matters: MBA has once again worked closely with House and Senate appropriators to both secure funding for targeted federal housing investments and enhance oversight of federal agencies’ actions through committee report language. MBA worked with key appropriators to help secure commentary calling for accountability from HUD regarding the operations of FHA’s multifamily lending program in the committee report. Both bills fund the administrative costs of Ginnie Mae and FHA, and the Senate bill includes $100 million in grants to support inclusive zoning.
• What’s next: These markups are an initial step toward eventual House and Senate negotiations on final FY24 HUD funding levels (as part of a broad, potential omnibus spending package to fund all federal agencies). House floor action on the all 12 individual appropriations bills – including its version of a T-HUD bill – remains uncertain. With Congress unlikely to reach agreement on government funding before September 30, 2023, legislators will almost certainly need to pass a “stop-gap” Continuing Resolution to keep the government operating beyond October 1, 2023.

For more information, please contact Ethan Saxon at (202) 557-2913 or Alden Knowlton at (202) 557-2741.

5. Senate Banking Committee Holds Hearing on FDIC Coverage

On Thursday, the Senate Banking Committee held a hearing titled, “Perspectives on Deposit Insurance Reform after Recent Bank Failures.” A summary of the hearing can be found here.

• Why it matters: The hearing witnesses each affirmed the benefit of FDIC coverage and explained options to expand coverage, including to all non-interest-bearing accounts or business accounts.
• What’s next: While the committee discussed reforms, it is unlikely that FDIC coverage will be modified legislatively this Congress.

For more information, please contact Ethan Saxon at (202) 557-2913 or Bill Killmer at (202) 557-2736.

6. CFPB to Hold Webinar on Small Business Loan Reporting

The Consumer Financial Protection Bureau (CFPB) announced it will hold a second RegCast on its small business reporting rule (Section 1071 of the Dodd-Frank Act). The RegCast will take place on Tuesday, July 25, 2023, at 11:00 am EST and will provide information to help financial institutions determine whether they are subject to the rule and what kinds of transactions should be reported.

• Why it matters: In March, the CFPB released its small business loan reporting final rule that requires some MBA members to collect and report data on certain commercial real estate loans. The rule exempts any loans that are already reportable under the Home Mortgage Disclosure Act (HMDA), and any lenders that originate less than 100 qualifying small business loans in each of the preceding two calendar years. A summary of the final rule is available here.
• What’s next: MBA will continue to inform members of additional webinars or updates from the CFPB on this and other issues.

For more information, please contact Stephanie Milner at (202) 557-2757.

7. MBA Joins Coalition Letter Highlighting Concerns with NAIC’s Proposed Change to Allow Its Securities Valuation Office to Overule Ratings on Certain Securities

Last Friday, MBA joined the American Council of Life Insurers (ACLI) and others in a coalition letter to the National Association of Insurance Commissioners (NAIC) on its proposed change (the “Proposal”) to allow its Securities Valuation Office (SVO) to challenge ratings on certain types of securities. The letter highlights due process concerns with allowing the SVO the right to challenge ratings on certain types of niche asset-backed securities as well as the lack of transparency offered as part of that process.

• Why it matters: The letter offers many suggestions to improve the Proposal, including a more transparent process that includes detailed information as to why the rating is being challenged, and an opportunity for appeal and oversight by an independent third party.
• What’s next: MBA will monitor developments closely and communicate any relevant updates to members.

For more information, please contact Stephanie Milner at (202) 557-2747.

8. House Lawmakers Introduce Bipartisan Bill to Make Small Business Tax Parity Provision Permanent

Last week, Rep. Lloyd Smucker (R-PA) and a bipartisan slate of nearly 100 co-sponsors introduced H.R. 4721, the Main Street Tax Certainty Act, which would make the 20 percent pass-through business tax deduction for Qualified Business Income (QBI) permanent. The bill is the House companion to legislation that was previously introduced in the Senate by Senator Steve Daines (R-MT). MBA helped craft a trade coalition letter showing strong support for the legislation, which can be found here.

• Why it matters: The 2017 Tax Cuts and Jobs Act created Section 199A of the Internal Revenue Code, which allows pass-through businesses to deduct up to 20 percent of qualifying business income. The deduction, which was created to allow LLCs and S Corps relative tax parity with C Corp entities benefiting from a lower corporate tax rate, is currently slated to expire at the end of 2025.
• What’s next: Any tax reform legislation introduced during the current divided Congress faces a challenging path to enactment. Nonetheless, maintaining this Section 199A deduction over time remains a key advocacy priority for MBA.

For more information, please contact Alden Knowlton at (202) 557-2741 or Bill Killmer at (202) 557 -2736.

9. Commercial and Multifamily Mortgage Delinquency Rates Increased Slightly in Second-Quarter 2023

Delinquency rates for mortgages backed by commercial and multifamily properties increased slightly during the second quarter of 2023, according to the Mortgage Bankers Association’s (MBA) latest commercial real estate finance (CREF) Loan Performance Survey, released last Tuesday.

• Jamie Woodwell, MBA’s Head of Commercial Real Estate Research said, “Commercial and multifamily mortgage delinquency rates rose for the third straight quarter but with significant differences by property type. Delinquency rates remain highest for lodging and retail loans, which have improved markedly but remain elevated as a result of pandemic-related impacts. Not unexpectedly, delinquencies among mortgages backed by office loans drove the overall increase this quarter – with the office delinquency rate rising 130 basis points from 2.7 percent to 4.0 percent. By comparison, retail delinquency rates rose 30 basis points, multifamily loan delinquency rates were unchanged, and industrial and lodging delinquency rates declined.”
• To download the report, click here.

For more information, please contact Jamie Woodwell at 202-557-2936.

10. [VIDEO]: mPower Moments: On Building the Next Generation with American Pacific Mortgage Company’s Bill Lowman

In this mPower Moments episode, mPower Founder Marcia M. Davies sits down with Bill Lowman, Vice Chairman of American Pacific Mortgage Company. During the interview, Lowman discusses his career in the real estate finance industry and his longtime involvement with MBA. He also talks about the importance of DEI and stresses that all people, regardless of background, should be afforded the opportunity to thrive within the industry. Furthermore, Lowman also highlights how the industry can recruit and retain diverse talent to ensure that our industry reflects its customer base.

• To watch more mPower Moments, click here.

For more information, please contact Marcia Davies (202) 557-2707.

11. Rent Control Map and State Trackers

• Given the ongoing proposals and ballot initiatives across the country, MBA has published an online map that provides an overview of state and local rent control laws. MBA will follow ongoing developments on this issue and will update the map accordingly.

For more information, please contact William Kooper at (202) 557-2737.

6. Upcoming MBA Education Webinars on Critical Industry Issues

MBA Education continues to deliver timely single-family and commercial/multifamily programming that covers the spectrum of challenges, obstacles and solutions pertaining to our industry. Below, please see a list of upcoming webinars – which are complimentary to MBA members:

-How to Leverage ChatGPT and Other Generative AI Platforms to Safely Improve Borrower Experiences – July 27
-Budgeting and Financial Planning for Non-Believers – August 22
-C-PACE Financing 101: A Commercial/Multifamily Lender’s Overview – August 23

MBA members can register for any of the above events and view recent webinar recordings by clicking here.

For more information, please contact David Upbin at (202) 557-2931.