CREF Highlights Nov. 12, 2020

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

California Ballot Initiatives Prop. 15 and Prop. 21 Likely Defeated

On Election Day last week, two California ballot initiatives that have been very concerning to the real estate finance industry were likely defeated. While final tallies are not yet available, the returns are very promising, and we are hopeful that the final results will confirm the defeat of both initiatives. Proposition 21 would have created a patchwork of state and local rent control laws that would make multifamily lending in the state more costly, and would have affected the availability of affordable real estate financing in California. Proposition 15 would have increased property taxes on commercial real estate by more than $12.5 billion annually by amending the state’s 42-year-old property tax limits – known as “Prop 13.”

  • Why it matters: If the votes hold on Propositions 15 and 21, it will represent a significant industry advocacy victory as MBA, the California MBA, and the Mortgage Action Alliance (MAA) were all opposed and took action to raise awareness of the many problems with each issue.
  • What’s next: MBA will follow the results for any changes, and will monitor the propositions’ impacts on commercial real estate policy in California and other states.

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

2. MBA Multifamily Council Call on November 20 Will Discuss FHFA New Activities Rule

MBA has scheduled a Multifamily Call for November 20, 2020, at 1 PM EST to discuss the Federal Housing Finance Agency’s (FHFA) new activities rule, among other topics. The proposal requires Fannie Mae and Freddie Mac (the Enterprises) to obtain prior approval from the FHFA Director for new products to provide prior notice before engaging in new activity, and to determine if the activity is in fact new and aligns with the Enterprises’ mission. The proposed rule, when finalized, would replace the interim final rule on new product approval that FHFA issued in 2009.

  • Why it matters: The new product and activity rule establishes procedures for FHFA review and, in some cases, public notice and comment, for some of the GSEs’ business changes.
  • What’s next: Comments will be due within 60 days of publication in the Federal Register.

For more information or to join a working group to develop comments on the proposal, please contact Sharon Walker at (202) 557-2747 or Bruce Oliver at (202) 557-2840.

3. 2020 MBA Forecast: Commercial/Multifamily Lending to Fall 34 Percent in 2020

Commercial and multifamily mortgage bankers are expected to close $395 billion of loans backed by income-producing properties in 2020, a 34 percent decline from 2019’s record volume of $601 billion, according to a new MBA forecast released yesterday.

  • What it says: Total multifamily lending alone, which includes some loans made by small and midsize banks not captured in the overall total, is forecast to fall 21 percent to $288 billion in 2020 from last year’s record total of $364 billion. MBA anticipates a slight increase in lending volumes in 2021, with activity rising to $407 billion in commercial/multifamily mortgage banker originations and $305 billion in total multifamily lending.
  • Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research, said, “There remains a great deal of uncertainty about the pandemic and its impacts on the economy and commercial real estate, with significant differences across property types and capital sources. The downturn is putting downward pressure on some property incomes, particularly property types most impacted by the pandemic or with shorter lease terms. With low interest rates and investment yields, property values are likely to hold up better, which should help put a floor under sales and originations volumes this year and next.”

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

4. First Fannie Mae Securitization Issued for Multifamily SOFR ARMs

Fannie Mae recently issued the market’s first-ever multifamily and single-family mortgage-backed securities backed by adjustable-rate mortgages referencing the Secured Overnight Financing Rate (SOFR). The trade dates were September 10, 2020, and October 23, 2020, respectively.

  • Why it matters: The London Interbank Offered Rate, or LIBOR, serves as the primary interest rate benchmark across numerous financial products, including floating-rate mortgages. Due to structural weaknesses in the benchmark that made it susceptible to manipulation during the crisis, regulators have called for markets to transition to more resilient benchmarks in the near future. As a result, LIBOR is likely to be discontinued in late 2021, or perhaps even sooner.
  • What’s next: The execution of these transactions will help demonstrate operational readiness to further advance the transition of new originations to an alternative reference rate.

For more information, please contact Andrew Foster at (202) 557-2740.

5. HUD Issues Two Notices on HUD Program Information Collection

On October 30, the U.S. Department of Housing and Urban Development (HUD) published a 60-Day Notice of Proposed Information Collection: HUD Environmental Review Online System (HEROS), and a 30-Day Notice of Proposed Information Collection: Technical Suitability of Products Program. Click here to see the notices.

  • Why it matters: When an OMB Control Number nears expiration, HUD must reapply for OMB’s approval or cancel the collection in order to prevent violations of the Paperwork Reduction Act.
  • What’s next: MBA’s FHA Committee will examine the proposed information collection. The comment periods end November 30 and December 29, 2020.

For more information, please contact Sharon Walker at (202) 557-2747.

6. Commercial/Multifamily Borrowing Falls 47 Percent in the Third Quarter of 2020

Commercial and multifamily mortgage loan originations were 47 percent lower in the third quarter compared to a year ago, and increased 12 percent from the second quarter of 2020, according to MBA’s Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations, released on Tuesday.

  • What it says: All property types showed a decline in the third quarter in commercial/multifamily lending volumes when compared to the third quarter of 2019. On a quarterly basis, originations were up 12 percent from this year’s second quarter, led by increases in originations for industrial, office, health care, and multifamily properties.
  • Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research, said, “Borrowing and lending backed by commercial and multifamily mortgages remained subdued during the third quarter. Every major property type and capital source recorded a decline compared to last year’s third quarter. Originations backed by industrial and multifamily properties saw smaller declines than other property types, with multifamily lending buoyed by loans made for Fannie Mae, Freddie Mac and FHA.”

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

7. Commercial and Multifamily Mortgage Delinquencies Decrease in October

Delinquency rates for mortgages backed by commercial and multifamily properties declined in September, according to MBA’s latest monthly MBA CREF Loan Performance Survey, released on Monday.

  • What it says: Commercial and multifamily mortgage loan performance improved for the second straight month in October, driven by fewer new loans becoming delinquent. Overall, 94.6 percent of outstanding loan balances were current, up from 94.3 percent in September.
  • Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research, said, “Commercial and multifamily mortgage performance improved in October, but there continues to be evidence of elevated stress, especially among loans backed by retail and lodging properties. The share of loans becoming newly delinquent fell again last month, but a larger share of non-current loans shifted to later-stage delinquencies. In essence, fewer loans are becoming delinquent, but those that are delinquent show fewer signs of curing.”

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

8. New York Regulator Announces Supervisory Expectations Regarding Climate Change

Last Friday, the New York Department of Financial Services (DFS) sent a message to all financial institutions it regulates, laying out the potential risks from climate change and also detailing DFS’s expectations for risk mitigation plans. The memo notes that residential and commercial loans are examples of the types of assets that can be at risk due to weather events, and that economically vulnerable communities, often minorities and communities of color, are particularly threatened with respect to environmental impact. DFS expects that all regulated organizations will begin integrating the financial risks from climate change into their governance frameworks, risk management processes, and business strategies. DFS also expects these firms to consider engaging with the Task Force on Climate-related Financial Disclosures’ framework and other established initiatives when developing their plans. Lastly, DFS expects non-depositories to conduct a risk assessment of the physical and transition risks of climate change, whether directly impacting them or the communities they serve in terms of business disruptions, loss of income and higher default rates, supply chain disruptions, and changes in investor and consumer sentiments, and start developing risk mitigation plans. DFS is developing a strategy for integrating climate-related risks into its supervisory processes, in coordination with federal and international regulators.

  • Why it matters: New York DFS is the first state mortgage regulator to issue such a directive and this could lead to similar action from other states. The federal banking agencies are also considering how to incorporate climate change into their supervisory processes. 
  • What’s next: MBA will work with the New York MBA to engage with DFS and to brief members on any developments, and will be developing educational resources to assist with these requirements. 

For more information, please contact William Kooper at (202) 557-2737 or Grant Carlson at (202) 557-2870.

9. State Updates – Eviction Moratorium, State Legislative Roundup, and Rental Assistance Tracker

MBA has compiled a new member resource outlining current state and local rental assistance programs or resources. We will continue to provide weekly updates on these member resources.

Highlights this week:

  • Arizona’s residential eviction moratorium expired on October 31, 2020. 

State Trackers:

  • MBA’s CREF State Eviction Moratorium Tracker can be found here.
  • MBA’s CREF State Legislation Roundup can be found here.
  • MBA’s State Rental Assistance Tracker can be found here.

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

10. Banking Agencies Issue Interagency Statement on LIBOR Transition for Loans

The Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Board of Governors of the Federal Reserve System issued a joint statement reiterating that a bank may use any reference rate for its loans that the bank determines to be appropriate for its funding model and customer needs. However, regulated banks should include fallback language in their lending contracts that provides for use of a robust fallback rate if the initial reference rate is discontinued. In making this statement, the Agencies reiterated that they are not endorsing a specific reference rate for LIBOR for loans.

  • What’s next: LIBOR is likely to be discontinued in late 2021, or perhaps even sooner. The agencies encourage banks to determine appropriate reference rates for lending activities and begin transitioning loans away from LIBOR without delay, to accelerate outreach to customers, and to consider systems changes that might be necessary for LIBOR transition.

For more information, please contact Andrew Foster at (202) 557-2740.

11. Upcoming and Recent 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 and recent webinars – which are complimentary to MBA members:

  • MISMO: Blockchain Mortgage Banking Legal and Regulatory Issues – November 17
  • MAA Post-Election Update: November 2020 – November 19
  • URLA: New Updates to the Uniform Loan Application Form and Automated Underwriting Systems – November 19
  • Leadership During Crises and Transitions – December 10
  • Mortgage Market Developments and Becoming a Public Company – December 14
  • Small Balance Lending in Today’s Market – December 17

MBA members can register for any of the above events and view recent webinar recordings by clicking here.For more information, please contactDavid Upbin at (202) 557-2890.