MBA CREF COVID Communication – Legislative and Regulatory Update – June 3, 2020

A summary of the legislative, regulatory and operational items our membership has asked MBA to help address, including actions, next steps and how you can get involved.

MBA State Advocacy Efforts

1. California: Call to Action to Oppose Excessive Forbearance Legislation

Last week, MBA launched a Call to Action in opposition to California AB 2501, which would allow multifamily borrowers to demand two consecutive 180-day periods of forbearance. Borrowers would have up to 12 months after this period expires to bring the loan current. During these periods, all foreclosures and evictions would be suspended. Borrowers would also be required to provide undefined rent concessions to tenants. Thousands of MBA members contacted California legislators to express opposition.

• Why it matters: The legislation provides no relief or liquidity facility for lenders, and would likely lead to rent increase and/or defaults at the end of the forbearance period.
• What’s next: AB 2501 is expected to be amended and advanced out of the California State Assembly Banking and Finance Committee later this week before moving to the Assembly floor.

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

2. California: Call to Action to Oppose Permitting Commercial Tenants to Void Leases

On Monday, MBA launched a Call to Action in opposition to California bill SB 939, which would allow some commercial tenants to terminate leases if the tenant cannot come to a resolution with the landlord on how to address the effects of the COVID-19 pandemic. Under the amended bill, “the commercial tenant may terminate the lease without any liability for future rent, fees, or costs that otherwise may have been due under the lease by providing written notification to the landlord.” The bill would apply to businesses with up to 500 employees that are not franchises. If passed, the bill would remain in effect until December 31, 2021, or two months after the end of the COVID-19 emergency, whichever is later.

• Why it matters: The bill could have substantial negative impacts on owners of properties that lease space to “small businesses” under the bill.
• What’s next: The bill was advanced out of the Senate Judiciary Committee last week and is pending consideration in the Senate Appropriations Committee. MBA will work with the California MBA to monitor developments.

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

3. New York: Call to Action to Oppose 90-Day Cancellation of Rent and Forbearance

MBA launched a call to action in New York to oppose two pieces of companion legislation, A.10224-A/S.8125-A. The bills would provide a 90-day rent holiday for New York residential and small-business tenants; provide 90 days of forbearance for residential and small-business borrowers; and remove personal liability for small-business leases, allowing small-business tenants to walk away from leases.

• Why it matters: If enacted, this legislation would make lenders cover the cost of relief to tenants and borrowers.
• What’s next: The Senate version of the bill advanced out of a Senate committee last week. The legislature is expected to adjourn within the next two weeks. MBA will work with local trade associations to continue to oppose the enactment of these bills.

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

Insurance Company Relief
MBA’s Life Company RBC Working Group will meet to prepare for two important life company risk-based capital initiatives. First, the Working Group will prepare for a June 12 call of the National Association of Insurance Commissioners Financial Condition Committee to consider a May 19 joint-trades letter request for an extension of the modification period covered by Life Company Risk-Based Capital Guidance issued March 27 (the modification period currently ends June 30).

Second, the Working Group will be finalizing a request to the NAIC Life RBC Working Group for guidance on 2020 RBC reporting.

• Why it matters: The extension would provide life companies with time to work with borrowers as facts evolve, and to make prudent modifications to address COVID-19 impacts. The 2020 reporting guidance would prevent temporary impacts of the pandemic from having unwarranted impacts on capital requirements.
• What’s next: The Financial Condition Committee is scheduled to meet June 12, and MBA plans to submit proposed guidance to the Life RBC Working Group later this week.

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

TALF and CMBS
Latest Round of TALF FAQs Lists Five Eligible Rating Agencies

Last week, the Federal Reserve released an updated set of Frequently Asked Questions (FAQs) regarding the Term Asset-Backed Securities Loan Facility (TALF), listing five eligible rating agencies. The original version only listed three.

Specifically, the updated version reads, “Eligible NRSROs include Fitch Ratings, Inc., Moody’s Investors Service, Inc., and S&P Global Ratings. Eligible NRSROs also include DBRS, Inc. and Kroll Bond Rating Agency, Inc., only to the extent the collateral also has a qualifying rating from Fitch Ratings, Inc., Moody’s Investors Service, Inc., or S&P Global Ratings.”

• Why it matters: The U.S. Securities and Exchange Commission (SEC) lists nine credit rating agencies as registered nationally recognized statistical ratings organizations (NRSROs). Limiting eligible ratings agencies could limit eligible transactions for the TALF program.
• What’s next: MBA will work with its industry partners to ensure that all eligible NRSROs are also eligible for TALF.

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

SEC and NRSRO Update

SEC’s FIMSAC Committee Releases Recommendations on ‘Issuer-Pays’ NRSRO Model. On Monday, the SEC’s Credit Ratings Subcommittee of its Fixed Income Market Structure Advisory Committee (FIMSAC) met, and released three recommendations to attempt to “mitigate some of the perceived potential conflicts of interest associated with the current issuer-pay model, without being overly prescriptive or recommending structural changes to the current NRSRO selection process.”

The recommendations contain three elements:

1. Increased NRSRO disclosure;
2. Enhanced issuer disclosures; and
3. A mechanism for bondholders to vote on the issuer-selected NRSROs.

• Why it matters: The SEC’s FIMSAC is comprised of industry and educational market experts who provide recommendations for the agency to consider implementing.
• What’s next: MBA will work with the SEC to understand and engage in its process for considering such recommendations.

For more information, please contact Mike Flood at (202) 557-2745

OCC Update
OCC Sounds Warning About Effects of COVID-19 ‘Lockdowns’ on Banking System

On Monday, Acting Comptroller of the Currency Brian P. Brooks expressed concerns about the effects of regional and local responses to COVID-19 on the federal banking system. In letters to the National League of Cities, the U.S. Conference of Mayors, and the National Association of Governors, Brooks urged mayors and governors to consider the adverse impact of a long-term regional economic shutdown on the nation’s banks when making their decisions. “During a period of double-digit unemployment and stresses caused by local responses to COVID-19 to previously safe and sound business and commercial real estate portfolios, actions that exacerbate that risk may prolong and worsen an economic downturn, reduce the availability of credit and capital that would support recovery, and result in safety and soundness issues that are especially significant for smaller community and regional banks with business concentrations in these areas,” he said. 

• Why it matters: Asking states to carefully consider the impact of their lockdown orders on the economy is one of Brooks’ first actions as Acting Comptroller.
• What’s next: MBA will continue to advocate for lenders at the state level and will monitor federal regulatory reactions to such state actions.

For more information, please contact Bruce Oliver at (202) 557-2840 or Grant Carlson at (202) 557-2785