CREF Policy Update: Aug. 3, 2023

1. Banking Agencies Issue Proposed Changes to Bank Capital Requirements

Last week, the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) issued interagency proposed changes to capital requirements for banks with assets of $100 billion or more. The so-called “end game” proposed rules complete U.S. regulators’ implementation of the Basel III standards and make changes in response to the recent large bank failures.

The proposed changes effectively increase capital requirements at larger banks by about 15 to 20 percent – large enough to impact which lines of business banks choose to support or withdraw from, and with potential implications for the entire mortgage market. MBA strongly opposes certain provisions of the proposal and on Wednesday sent an open letter to the leadership at the banking agencies that urged them to vote against its issuance, highlighting that the substantial capital hike will have both macroeconomic and sector impacts and would fundamentally shift what business lines mid-sized and regional banks will focus on.

MBA President and CEO Bob Broeksmit, CMB, said in a press statement that “this unnecessary proposal will increase borrowing costs and reduce credit availability for the very consumers and borrowers this administration ostensibly seeks to assist,” and that “experience with such significant capital changes tells us that equity markets will react immediately, and banks will respond to that pressure in real time, long before the final rule is issued.”

-Why it matters: The agencies’ proposal makes significant changes to how larger banks calculate their risk-weighted assets and imposes several additional requirements on banks with total assets of $100B or more, including a modification of current rules on the deduction of threshold items (including MSRs) from common equity tier 1 capital, and a requirement to include net unrealized losses on available-for-sale securities in the calculation of regulatory capital.

The proposal also changes the risk weighting on certain mortgage loans held by the largest banks – a provision that goes beyond the Basel III Accord – that in turn could make homeownership less attainable to first-time homebuyers and low- and -moderate-income borrowers with smaller down payments. These changes could impact banks as lenders, servicers, and providers of warehouse lines and MSR financing, and were made with scant analysis regarding how they will effect the economy or the housing and mortgage markets specifically.

-What’s next: Comments on the proposal are due by November 30, 2023, with July 1, 2025, as the start of a three-year transition period provided for the final rule. MBA is currently reviewing the over 1,000-page proposal and will provide a summary of the key provisions impacting single-family and commercial/multifamily sectors in the coming days. MBA will work with members and other industry stakeholders to formulate our response, focusing on the numerous negative impacts these proposed rules would have on the housing finance ecosystem.

For more information, please contact Pete Mills at (202) 557-2878, Mike Flood at (202) 557-2745, Fran Mordi at (202) 557-2860 or Stephanie Milner at (202) 557-2747.

2. Treasury Announces New Climate Counselor

The Department of Treasury announced the appointment of a new Climate Counselor to lead “Treasury’s efforts to facilitate and unlock the financing needed for investments to achieve a net-zero economy at home and abroad.” Ethan Zindler, formerly of BloombergNEF, will serve in this role, including as Head of Treasury’s Climate HUB.

-Why it matters: The Climate HUB will focus on 1) climate transition finance, 2) climate-related economic and tax policy, and 3) climate-related financial risks. Currently, Treasury works with other agencies in making recommendations to identify, assess, and mitigate climate-related risks to the financial system. This will be a particularly important role as agencies propose regulations for ESG and climate resiliency in the financial services sector.

-What’s next: MBA will monitor the activities of Treasury and the Climate HUB to ensure their actions do not impact financial markets negatively.

For more information, please contact Megan Booth at (202) 557-2740.

3. FHFA Director Sandra Thompson Releases Statement on Best Practices for Tenant Adverse Action Notices

Last Thursday, Federal Housing Finance Agency (FHFA) Director Sandra Thompson issued a statement on best practices for adverse action notices for renters. As part of FHFA’s work to enhance tenant protections, the statement strongly encourages (though does not require) multifamily borrowers with an Enterprise-backed mortgage to provide written notices to tenant applicants of adverse action notices and provide such applicants with a copy of any consumer screening report relied upon by the borrower. Borrowers (or property managers) are already required under the Fair Credit Reporting Act to inform tenant applicants of unfavorable information in a consumer report that led such a borrower to deny a rental application.

-Why it matters: Director Thompson’s statement is part of an overall effort by the Biden Administration and FHFA to enhance the tenant experience. In June, FHFA released a request for input (RFI) on tenant protections for Enterprise-backed multifamily properties, with comments due July 31, 2023.

-What’s next: MBA is working with members to finalize its response to the RFI and will submit it to FHFA by July 31.

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

4. White House Promotes Housing Supply and Tenant Rights in Two Fact Sheets

Last Thursday, the White House published two fact sheets that summarize actions the Biden Administration has taken to reduce housing costs and increase supply and provide protection for rental housing residents. The housing supply fact sheet highlights recent Department of Housing and Urban Development (HUD) actions, including increasing the high-cost loan limit threshold, removing the cap on the Low-Income Housing Tax Credit (LIHTC) pilot program, as well as new initiatives to research office-to-housing conversions. The renter protections fact sheet summarizes actions the Administration is taking to provide tenants with opportunities to address tenant screening reports, funding for education and outreach, and 30 days’ notice of eviction in certain HUD-assisted properties.

-Why it matters: MBA advocated successfully for several of the recent HUD announcements, including the large loan limit increase and LIHTC cap removal to increase access to FHA financing for multifamily loans.

-What’s next: MBA will continue its advocacy with the Biden Administration on these issues, with a focus on solutions that reduce barriers and eliminate unnecessary costs to increase the supply of affordable housing.

For more information, please contact Megan Booth at (202) 557-2740.

5. House Financial Services Committee Holds Contentious Markup; Passes Section 1071 Resolution

Late last Thursday evening, the full House Financial Services Committee (HFSC) concluded a contentious, full-day markup of several bills, including two with potential impact on MBA members. MBA’s letter to committee leaders regarding our real estate finance-related concerns is here.

-Why it matters: House Joint Resolution (H.J. Res) 66, offered by House Small Business Committee Chairman Roger Williams (R-TX), would nullify the CFPB’s recent final rule implementing Section 1071 of the Dodd Frank Act that mandates the collection and reporting of demographic data on small business loan applicants. While MBA believes the rule and its protections for small business borrowers should not apply to loans that finance income-producing properties, the Bureau did not include a blanket exemption for this loan category.

-What’s next: Regardless of the outcome of the Williams resolution’s full consideration, MBA recommends that the CFPB should revisit its rule and clarify that the investment properties exclusion from Section 1071 applies to all investment property lending. H.J. Res 66 is expected to pass the full House later this year along partisan lines (Senate action is unlikely).

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

6. Senate Banking Subcommittee Holds Hearing on Consumer Fees

Last Wednesday, the Senate Banking Committee Subcommittee on Financial Institutions and Consumer Protection held a hearing titled, “Taking Account of Fees and Tactics Impacting Americans’ Wallets.” A summary of the hearing can be found here.

-Why it matters: The hearing witnesses mentioned bank fees and tenant fees as examples of “junk fees.” Senators expressed bipartisan interest in more transparency with regards to fees in the banking and rental housing sectors.

-What’s next: While legislation on consumer fees is unlikely to be enacted, senators will continue to debate the White House initiative targeting landlord “junk fees” and the possible role of the CFPB as a regulator in this area.

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

7. Federal Reserve Announces Rate Hike

The Federal Reserve in its ongoing efforts to slow inflation raised the federal funds rate by another 25 basis points to a target range of 5.25-5.50% on Wednesday – the highest level in 22 years.

-Why it matters: This short-term rate hike marks the 11th increase since March 2022. Additionally, the FOMC emphasized that, “the Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will consider the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

-MBA’s SVP and Chief Economist Mike Fratantoni noted, “The FOMC increased short-term rates yet again at its July meeting, responding to high, but moderating inflation and a job market that remains quite strong. However, both are now moving in a direction which could allow this hike to be the Fed’s last for this cycle. We expect that to be the case, but for the Fed to hold off on any rate cuts until we are well into 2024.”

For more information, please contact Mike Fratantoni at (202) 557-2935.

8. 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.

9. 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 Combat Risk, Fraud and Losses in an Economic Downturn – August 3
-Budgeting and Financial Planning for Non-Believers – August 22
-C-PACE Financing 101: A Commercial/Multifamily Lender’s Overview – August 23
-Current Expected Credit Losses (CECL) Updates – August 24
-Succeeding Today and Tomorrow: Tech Tools That Can Drive More Market Share – September 7

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.