CREF Highlights July 9, 2020

Commercial and multifamily developments and activities from MBA relevant to your business and our industry.

NAIC Extends Modification Period Under Life Company RBC Guidance to End of 2020

Last Tuesday, the National Association of Insurance Commissioners (NAIC) Life Risk-Based Capital Working Group extended the modification period under NAIC life company RBC Guidance to December 31, 2020. Formal documentation to follow. The Working Group also confirmed that construction projects paused by governmental directive as not “abandoned” for capital purposes. Both items had been jointly proposed by MBA and the American Association of Life Insurers (ACLI). Initially, the modification period under the NAIC RBC Guidance was extended only to June 30, before an additional extension was made on June 12 to extend the modification period to September 30. Tuesday’s extension of the modification period means that prior NAIC RBC Guidance applies to life company 2020 year-end risk-based capital reporting.

  • Why it matters. The extension gives life companies additional runway to work prudently with borrowers through the end of the year without unwarranted capital impacts to year-end 2020 reporting.
  • What’s next. The NAIC Working Group also discussed but did not decide on MBA/ACLI proposals for the treatment of 2020 Net Operating Income (NOI) and Contemporaneous Property Valuation. The Working Group asked MBA/ACLI to follow up on the discussion by developing possible revisions to the proposal to address concerns raised by Working Group members. Proposed revisions will be discussed on an NAIC Working Group call scheduled for July 10.

For more information, contact Bruce Oliver at (202) 557-2840.

The FFIEC Issues Joint Statement on Managing the LIBOR Transition

Last Wednesday, the Federal Financial Institutions Examination Council (FFIEC) released a statement on managing the London Interbank Offered Rate (LIBOR) transition applicable to all FDIC-supervised institutions with exposure to the LIBOR reference rate. The statement highlights the financial, legal, operational and consumer protection risks that will result from the expected discontinuations of LIBOR.

  • Why it matters: The LIBOR transition is a significant event that supervised institutions should closely manage. This statement highlights several potential preparedness and risk management actions that institutions should factor into their planning for the transition, but it does not establish new guidance or regulation. Institutions should consider existing safety and soundness standards and consumer protection laws as they plan for – and address risks – that will arise with the transition.
  • What’s next: Given the significant effort involved in preparing for the transition, the supervisory focus on evaluating institutions’ preparedness for LIBOR’s discontinuation will increase during 2020 and 2021, particularly for institutions with significant LIBOR exposure or less-developed transition processes.

For more information, contact Andrew Foster at (202) 557-2740 or Bruce Oliver at (202) 557-2840.

Agencies Approve Final Rule Volcker Rule Amendments that Respond to MBA Recommendations

Last week, the Office of the Comptroller of the Currency (OCC); U.S. Treasury; Board of Governors of the Federal Reserve System (Board); FDIC; Securities and Exchange Commission (SEC); and Commodity Futures Trading Commission (CFTC) approved a final rule implementing improvements to the Volcker Rule.

Among the provisions of the final rule are changes that are directly responsive to the recommendations in MBA’s April 1, 2020, comment letter. Specifically, the final rule 1) clarifies that the right of a creditor to participate in the removal or replacement of an investment manager for cause does not give the creditor an “ownership interest” in a covered fund; and 2) clarifies that contractual loan terms under which payments under the loan may vary do not exclude a loan from the senior loan or other indebtedness safe harbor.

  • Why it matters: Overly broad application of the Volcker Rule could have unintended adverse impacts on CMBS liquidity.
  • What’s next: MBA will monitor for future revisions to the rule.

For more information, contact Bruce Oliver at (202) 557-2840.

State Roundup

4. Oregon Quickly Enacts New Temporary Forbearance and Eviction Standards

Following a hurried special legislative session in which several bills went from introduction to passage in just over 48 hours, both chambers of the Oregon Legislature waived normal procedural rules, and Oregon Governor Kate Brown immediately signed two key pieces of coronavirus-related legislation.

House Bill 4204A directs lenders to defer both residential and commercial mortgage payments during the pandemic emergency period (until September 30, 2020) if a borrower is unable to pay due to the pandemic. Deferred payments would be due at the end of the loan with the same terms as in place during the emergency period. House Bill 4213A extends the state’s current moratorium on both commercial and residential evictions through the end of September 2020 and creates a six-month repayment grace period after the moratorium ends. During the repayment period, tenants may not be evicted for failure to repay their back rent, but they must keep paying their ongoing monthly rent. Negative credit reporting for nonpayment of rent during the moratorium is also prohibited, as is assessing late fees or other penalties for nonpayment. MBA and the Oregon MBA collaborated to issue a Call to Action urging the governor to veto both bills.

  • Why it matters: The new laws received little to no stakeholder input, and consequently are poorly drafted and contain numerous problematic provisions. Additionally, though temporary, the law’s requirements could be extended by the state.
  • What’s next: MBA and the Oregon MBA will advocate for amendments in a forthcoming special session scheduled for the coming weeks to address state budget issues.

For more information, contact William Kooper at (202) 557-2737 or Grant Carlson at (202) 557-2765.

New York Legislature Expected to Reconvene Later this Month, Potentially Considering Key Bills

Several important bills will be before the New York Legislature when it reconvenes later this month.

  • New York A10224-A/S8125-A. The bill would suspend all residential rent for 90 days; provide 90 days forbearance for multifamily borrowers and small-business borrowers; and allow small businesses to invalidate leases without legal implication or personal liability.
  • New York A10544. The bill would require commercial mortgage lenders to grant interest-free loans (six months of deferral, interest-free; and repayment as an interest-free balloon due at the end of the term of the lease) to small businesses with commercial mortgage loans secured by the business property that serves as their principal place of business.
  • New York S7232/A90401. The bill would tax and require recording of mezzanine debt, substantially increasing the cost of such debt.

For more information, contact William Kooper at (202) 557-2737 or Grant Carlson at (202) 557-2765.

Recent and Upcoming MBA Education Webinars on COVID-19-Related Topics

MBA Education continues to deliver timely single-family and commercial/multifamily programming that covers the spectrum of challenges, obstacles, and solutions pertaining to the ongoing COVID-19 pandemic. Below, please see a list of upcoming and recent webinars – which are complimentary to MBA members:

MBA members can access the full list of COVID-19 webinar recordings by clicking here. For more information, please contactDavid Upbin at (202) 557-2890.