CREF Policy Update Dec. 16, 2021

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

FinCEN released an ANPRM last week soliciting feedback on reporting requirements for both residential and commercial real estate transactions, and an NPRM on beneficial reporting requirements of defined entities owning property in the United States on how FinCEN should expand reporting requirements for both residential and commercial real estate transactions.

Also last week, the House overwhelmingly passed MBA-supported legislation that would address “tough legacy” contracts indexed to LIBOR. And Congress took procedural steps to inch closer to raising the federal debt limit and negating the prospect of defaulting on the national debt

FinCEN Releases ANPRM Proposing New Commercial Real Estate Reporting Requirements

On Monday, the U.S. Financial Crimes Enforcement Network (FinCEN) released an Advanced Notice of Proposed Rulemaking (ANPRM) soliciting public comment on how it should expand reporting requirements for both residential and commercial real estate transactions. 

• Why it matters: The ANPRM proposes 84 questions and suggests FinCEN could require the reporting of all commercial real estate transactions, while also potentially expanding which individuals and entities must report to FinCEN. 
• What’s next: The ANPRM is likely the first step before a final rulemaking. Comments are due by February 7, 2022. 

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

2. FinCEN Issues First NPR for Corporate Transparency Act 

Also on Monday, FinCEN issued a Notice of Proposed Rulemaking (NPR) regarding beneficial ownership reporting requirements in the Corporate Transparency Act.

• Why it matters: The Corporate Transparency Act, enacted in 2020, requires beneficial ownership reporting requirements of defined entities operating in the United States – including entities owning property in the United States – to report their beneficial owners to FinCEN.
• What’s next: Comments are due by February 7, 2022.

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

3. LIBOR Transition Developments from FHA, CFPB, and Congress

Beginning a busy week on the London Interbank Offered Rate (LIBOR) transition front, MBA and other financial services trade associations on Monday submitted recommendations to the U.S. Department of Housing and Urban Development (HUD) regarding the impact of the transition on loans insured by the Federal Housing Administration (FHA). The coalition sought clarity from HUD on its plans to specify one or more replacement indices for existing FHA adjustable-rate mortgages (ARMs) indexed to LIBOR, as well as one or more alternate indices for new FHA ARMs.

On Tuesday, the Consumer Financial Protection Bureau (CFPB) issued a final rule to guide the transition for consumer products indexed to LIBOR. The rule details how financial institutions must determine replacement indices for ARMs and home equity lines of credit (HELOCs). For ARMs, servicers transitioning to an index based on a spread-adjusted Secured Overnight Financing Rate (SOFR) would be deemed to meet the rule’s requirements – and therefore the index replacement would not constitute a refinancing of the loan. For HELOCs, similar “safe harbor” treatment is provided for transitions to SOFR and the prime rate.

In addition to these regulatory developments, the House of Representatives on Wednesday overwhelmingly passed MBA-supported legislation (H.R. 4616) that would address “tough legacy” contracts indexed to LIBOR. The legislation, which advanced on a 415-9 vote, targets contracts with insufficient fallback provisions to minimize unnecessary litigation risk when LIBOR is no longer available and a replacement index must be selected. MBA and a broad group of stakeholders submitted a letter of support for this legislation earlier in the week. The legislation will now move to the Senate, where MBA will continue to advocate for its passage.

• Why it matters: Thorough efforts to advance the transition away from LIBOR have been undertaken by representatives from the public, private, and nonprofit sectors in recent years. These efforts have been guided by the twin pillars of facilitating a smooth transition and minimizing value transfer. MBA and its coalition partners will continue to seek clear guidance for industry participants to promote compliance certainty and equitable outcomes.

• What’s next: HUD is expected to issue a proposed rule with more details regarding LIBOR transition planning for FHA-insured loans in the coming months. The CFPB rule takes effect on April 1, 2022, though many actionable transition steps will occur much closer to LIBOR’s cessation in mid-2023. Finally, the Senate is expected to continue its consideration of LIBOR transition legislation in the coming weeks – with changes to H.R. 4616 still possible.

For more information, please contact Dan Fichtler at (202) 557-2780 or Borden Hoskins at (202) 557-2712.

4. SEC Releases Statement on LIBOR Transition 

On Wednesday, the U.S. Securities and Exchange Commission (SEC) released a statement on LIBOR transition and key considerations.

• Why it matters: The statement highlights issues relating to the fact that many transaction documents that contemplate only a temporary cessation of LIBOR, or contain no fallback language, will likely experience material changes in their investment returns when LIBOR is discontinued. Even newer issuances that contain fallback language may experience a change in potential returns on the investment because no replacement rate would provide a “perfect match” for LIBOR.
• What’s next: The SEC expects registrants to cease entering into new contracts indexed to LIBOR as soon as possible and no later than December 31, 2021.

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

5. ESG/CLIMATE RESOURCES

OCC Calls for Research on Climate Risk in Banking and Finance

On December 3, the Office of the Comptroller of the Currency (OCC) announced that it is soliciting academic papers and research on climate risk in banking and finance for presentation to the OCC on June 6-7, 2022. According to the OCC, the “information presented will inform the OCC’s approach to developing climate-related financial risk management guidance for regulated institutions.” The OCC’s areas of interest include, but are not limited to, physical risks related to climate change, transition risks from climate policies, technological innovation, and investor preferences. The OCC also listed climate risk modeling, stress testing, and environmental, social, and corporate governance (ESG) ratings as areas of interest.

• Why it matters: The OCC is expected to issue climate change guidance soon that may influence CREF.

What’s next: MBA is working with members and other trades on possibly submitting a climate-related research paper to the OCC in response to its request.

OCC Publishes Semiannual Risk Perspective

On Monday, the OCC’s National Risk Committee published its semiannual risk perspective, which highlights key issues facing the federal banking system, including the commercial real estate sector. Regarding commercial real estate, the report states that “the impact of the pandemic reduced demand for nearly every type of commercial real estate (CRE) and caused vacancies to rise. While some CRE segments began to recover during the first half of 2021, others are still vulnerable or remain under stress.”

• Why it matters: The semiannual risk perspective highlights industry trends for policymakers and industry to consider.
• What’s next: MBA will continue to monitor federal agencies for additional information that may impact the CREF industry.

For more information on climate or ESG, please contact Adrian Ballinger at (202) 557-2774.

6. LISTEN: MBA’s Jamie Woodwell Podcast Interview on Commercial/Multifamily Trends and Outlook 

Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research, recently recorded a podcast interview with RealCrowd CEO Adam Hooper on macroeconomic trends, commercial/multifamily investor demand as the pandemic evolves, interest rates, loan demand by property and investor type, and much more as the industry looks ahead to 2022.

• What it says: Click here to listen to the podcast and/or read the transcript.

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

6. Oregon Legislature to Meet in Emergency Session to Discuss Evictions 

The Oregon legislature is scheduled to meet in an Emergency Session on December 13 to consider legislation protecting renters.

• Why it matters: Oregon stopped accepting applications for emergency rental assistance on Wednesday. Lawmakers are considering appropriating an additional $190 million in emergency rental assistance and possibly enacting renter protections.
• What’s next: MBA will follow developments and provide updates as needed.

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

7. Commercial and Multifamily Mortgage Delinquency Rates Decreased in the Third Quarter of 2021         

Commercial and multifamily mortgage delinquencies declined in the third quarter of 2021, according to MBA’s latest Commercial/Multifamily Delinquency Report, released on Tuesday.

• What it says: MBA’s quarterly analysis looks at commercial/multifamily delinquency rates for five of the largest investor groups: commercial banks and thrifts, commercial mortgage-backed securities (CMBS), life insurance companies, and Fannie Mae and Freddie Mac. In the third quarter of this year, delinquencies declined across all investor groups.
• Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research, said, “Commercial mortgage delinquency rates for every major capital source have come down since the early months of the pandemic. With low numbers of loans becoming newly delinquent, much of the declines are coming from the resolution of loans with later-stage delinquency statuses. Despite successive waves of COVID-19, the economy has shown solid growth, and it is hard to imagine a return to the extraordinary shutdowns in early 2020 that negatively impacted some sectors of commercial real estate.”

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

8. MISMO Seeks Public Comment on Property Financial Statement Data Exchange  

MISMO®, the real estate finance industry’s standards maintenance organization, is seeking public comment on a proposed standard  that will facilitate a more accurate and efficient exchange of commercial financial operating statement data. The 90-day comment period began December 8 and runs through March 8, 2022. 

• Why it matters: The new MISMO exchange was developed by commercial real estate and technology professionals in response to the need to create a standard structure for sharing property financial operating statement data. The data exchange facilitates the efficient exchange of any property financial statement regardless of which chart of accounts is used, giving the commercial real estate industry greater flexibility without requiring all parties to adopt a single chart of accounts. 
• What’s next: Interested participants should visit this link for more information or email info@MISMO.org.

For more information, please contact Andrew Foster at (202) 557-2740 or Tara Dunion at (202) 557-2849.

9. RIHA Study: More Renters, Fewer Homeowners Missed Housing Payments in September and October      

Renters were roughly three times more likely than homeowners to miss payments during September and October 2021, according to updated research released on Tuesday by the Mortgage Bankers Association’s (MBA) Research Institute for Housing America (RIHA).

• What it says: Housing-Related Financial Distress During the Pandemic, RIHA’s study, found that the share of renters who missed, delayed, or made a reduced payment increased from 8.6% in July 2021 to 9.6% in September 2021 and 10.9% in October 2021. Fewer homeowners missed payments in September (3.2%) compared to June and July (4.6% and 3.8%, respectively), but the share did rise in October (3.8%).  
• Edward Seiler, RIHA Executive Director, and MBA’s Associate Vice President, Housing Economics, said, “RIHA’s research throughout the pandemic has provided a comprehensive picture for industry stakeholders and policymakers on households’ ability to make their housing statements. The overall economic outlook looks brighter but still greatly depends on the course of the virus. Continued job growth and wage gains – especially if they can offset inflation – are key to helping those households that are still facing hardships.”

For more information, please contact Eddie Seiler at (202) 557-2739.

10. State Trackers

• State eviction moratorium and legislative activity tracker available here.

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

11. mPact Fall Fundraiser Benefiting MBA Opens Doors Foundation 

mPact will host a fundraising event benefiting the MBA Opens Doors Foundation. Join us for an in-person distillery tour at J. Rieger & Co. in-person in Kansas City, Missouri, on Thursday, Dec. 16.

• Why it matters: Since 2018, the mPact Committee has made giving back to its communities a central part of its mission, selecting the MBA Opens Doors Foundation as its charity of choice. Each fall, the mPact team takes on a series of fundraisers with the goal of raising funds to support the Opens Doors Foundation’s mission of providing mortgage and rental assistance grants to parents and guardians caring for a critically ill or injured child.  
• What’s next: Help mPact support families in need while taking care of yourself! Click here to register.

For more information, please contact Jacky Salazar at (202) 557-2746.

12. Upcoming MBA Education Webinars on Critical Industry Issues

MBA Education continues to deliver timely 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:

• Ten Things Your Company Must Do in 2022 – January 12
• The Climate Change Imperative: Exploring the Role of Residential Lenders and Servicers – January 18
• DUS Multifamily Asset Management Perspectives – January 19
• Winning Game Plan for Improving “B” Originators – January 25
• Successful Recruiting in a Changing Marketplace – February 10

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

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

For more information, contact David Upbin at (202) 557-2890.