CREF Policy Update Oct. 28, 2021

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

Last Wednesday, a group of federal and state regulators issued a joint statement emphasizing the need for financial institutions to transition away from the use of LIBOR in new contracts no later than December 31, 2021. Last Tuesday, MBA announced the 2022 Commercial Real Estate/Multifamily Finance Board of Governors.

Also last week, Senate Appropriations Committee Chairman Patrick Leahy (D-VT) released the text of the fiscal year (FY) 2022 T-HUD Senate Appropriations bill. MBA recently hosted its latest monthly virtual meeting of its Green Lending Peer Business Roundtable. On Thursday the Financial Stability Oversight Council released its Report on Climate-Related Financial Risk in response to a May 20 Executive Order. And congressional leaders continued negotiations with the White House in an attempt to reach an agreement on a new “framework” for a tax and reconciliation package before Halloween.

Also be sure to read a joint MBA-ALTA op-ed in The Hill on preserving the current capital gain tax treatment of Section 1031 like-exchanges.

1. Regulators Press for Transition away from LIBOR; OCC Highlights Risks Associated with LIBOR Alternatives other than SOFR

On Wednesday, a group of federal and state regulators issued a joint statement emphasizing the need for financial institutions to transition away from the use of LIBOR in new contracts no later than December 31, 2021. The statement clarifies the meaning of “new contracts,” reiterates expectations for robust fallback language in contracts, and advises institutions to develop clear communication plans and ensure systems and operational capabilities for the transition. Earlier in the week, the Office of the Comptroller of the Currency (OCC) released a bulletin updating its self-assessment tool to assist banks in their transition away from the use of LIBOR. While the OCC bulletin notes that banks may use any replacement rate, they determine to be appropriate, it specifies several concerns with the use of credit sensitive rates – concerns that it does not have with the use of the Secured Overnight Financing Rate (SOFR).

  • Why it matters: Together, these developments point to the continued escalation of regulators’ admonitions with respect to reliance on LIBOR. The OCC bulletin contains a stark warning regarding its concerns that many credit-sensitive rates may not be sufficiently robust, nor provide sufficient underlying transaction volumes. The bulletin further notes that the OCC plans to focus its initial supervisory efforts on banks that choose LIBOR alternatives other than SOFR, and it is likely that other regulators will follow suit.
  • What’s next: Regulators expect financial institutions to cease entering into new contracts indexed to LIBOR as soon as possible and no later than December 31, 2021. The Consumer Financial Protection Bureau (CFPB) also noted that it plans to issue a final rule in January 2022 to assist servicers in the transition away from LIBOR.

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

2. MBA Announces Commercial Real Estate/Multifamily Finance Board of Governors for 2022

On Tuesday, MBA announced the 2022 Commercial Real Estate/Multifamily Finance Board of Governors (COMBOG). The first in-person COMBOG meeting was also held at MBA’s 2021 Annual Convention & Expo in San Diego. Highlights of the meeting included discussions on MBA and COMBOG goals and objectives, economic and market conditions, tax policy, and the pandemic’s impact on the office market.

  • In a press release announcing the 2022 COMBG roster, Kristy Fercho, MBA Chairman, and Executive Vice President and Head of Home Lending at Wells Fargo, said, “This year’s COMBOG lineup represents a comprehensive collection of industry experts, who know what’s best for the entire real estate finance industry. I look forward to working with COMBOG as we continue to address top-line priorities for the industry.”  
  • Why it matters: COMBOG is comprised of MBA member executives representing all aspects of the commercial/multifamily real estate finance industry. COMBOG leads the strategic development of MBA’s commercial/multifamily policy and initiatives, as well as best practices and standards. Matthew Galligan, Vice Chairman Real Estate Finance, CIT will serve as COMBOG Chairman in 2022. Christine Chandler, Chief Credit Officer and COO, M&T Realty and Jeff Weidell, CMB, Chief Executive Officer, NorthMarq will serve as COMBOG Vice Chairs.

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

3. Senate Fiscal Year 2022 “T-HUD” Appropriations Act Released

On Monday, Senate Appropriations Committee Chairman Patrick Leahy (D-VT) released the text of the fiscal year (FY) 2022 Transportation, Housing and Urban Development, and Related Agencies (“T-HUD”) Senate Appropriations bill. Under the legislation, the Department of Housing and Urban Development (HUD) would receive $65.4 billion in total budgetary resources, which is $5.7 billion above the enacted level in fiscal year 2021. The committee included report language, requested by MBA, expressing concern regarding a backlog of applications and delayed underwriting within the Federal Housing Administration’s (FHA) Multifamily Housing program. The report states, “[t]he Committee is concerned with the growing backlog of applications and delayed underwriting in FHA Multifamily Housing. The Committee also directs the Department to provide an after-action report to the House and Senate Committees on Appropriations within 90 days of enactment of this act on the actions taken by the Department in response to recent increased volume, the efficacy of workload sharing as envisioned by the multifamily transformation, consistency of processes between regions, and lessons learned to inform future risk management plans and better prepare for future volume surges.” In addition, the legislation also provides up to $5 million for “modernizing FHA Multifamily Housing IT systems … limited to planning activities and development of the automated underwriting system.”

  • Why it matters: The committee report language on the FHA Multifamily Housing backlog provides recognition by the Senate of the problem that MBA and our coalition partners have repeatedly urged FHA to address. The requirement to brief the committee should encourage coordination within HUD on finalizing a contract for support services to reduce the backlog.
  • What’s next: The House and Senate will negotiate an omnibus fiscal year 2022 appropriations package to be voted on in December 2021.

For more information, please contact Ethan Saxon at (202) 557-2913 or Tallman Johnson at (202) 557-2866. 

4. House Financial Services Committee Holds Third Hearing on Housing as Reconciliation Negotiations Continue

Yesterday, the House Financial Services Committee (HFSC) convened for a third hearing that focused on the importance of investing in housing as part of the Build Back Better Act (BBBA) budget reconciliation package and the ongoing interparty negotiations between congressional Democrats and the White House. This hearing followed a similar theme from last week, when the HFSC Subcommittee on Housing, Community Development and Insurance held a hearing focused on exclusionary zoning. On Wednesday, Senate Banking and Housing Committee Chairman Sherrod Brown (D-OH) and HFSC Chairwoman Maxine Waters (D-CA) also held a press conference urging congressional leaders to maintain robust housing investments in the BBBA.

  • Why it matters: Throughout the course of the budget reconciliation process, multiple flashpoints on tax policy and spending levels have emerged between progressives — who have pushed for more ambitious proposals on high-income earners and corporations — and moderates who have expressed uneasiness with a sharper hike in tax rates and the overall price tag. As Democratic leadership examines ways to pare back the $3.5 trillion figure for the proposed BBBA, several affordable housing provisions could be curtailed or eliminated as part of the broader package.
  • What’s next: Democratic leaders are publicly aiming for a broad agreement on the reconciliation bill’s framework before month’s end. MBA will continue its direct lobbying efforts to urge Congress to uphold our industry’s priorities in this evolving bill.

For more information, please contact Borden Hoskins at (202) 557-2712 or Alden Knowlton at (202) 557-2741.

5. ESG/Climate Resources

FSOC Issues Report on Climate-Related Financial Risk

In response to a May 2021 executive order, the Financial Stability Oversight Council (FSOC) released its Report on Climate-Related Financial Risk. The report recognizes that climate change is an emerging threat to the financial system and outlines dozens of recommendations for financial regulators to take, including expanding climate disclosures, addressing data gaps, creating climate committees, and generally building coordination on financially related climate issues between agencies. The report also describes the usefulness of climate-related stress tests but provides no recommendation for incorporating such tests at this time. Specific to work ongoing at the MBA right now, the report “recommends that the Federal Insurance Office (FIO) should act expeditiously to analyze the potential for climate change to affect insurance and reinsurance coverage.” MBA is in the process of responding to the FIO’s Request for Input on climate-related gaps in the insurance sector and coordinating with other trades.

  • Why it matters: FSOC is comprised of the heads of the major federal and state financial regulators. The report is largely an overview of current efforts but provides valuable context to ongoing climate-related work which could lead to future changes in underwriting requirements, insurance pricing or availability, disclosure mandates, or scenario analysis and stress testing.
  • What’s next: The FSOC will continue to analyze climate-related financial risks, as will its member agencies. MBA staff will also continue to analyze the report for possible impacts on commercial real estate finance.

FSB issues Report from Task Force on Climate-related Financial Disclosures 

Last week, the Financial Stability Board (FSB) issued its 2021 Status Report, which said that disclosures of climate-related financial information were increasingly aligned with Task Force on Climate-related Financial Disclosures (TCFD) standards over the last year. The report highlights 9% growth in TCFD-based disclosure in 2020 compared to just 4% growth in 2019. Additionally, the report found that “over 50% of firms disclosed their climate-related risks and opportunities.”

  • Why it matters: The TCFD framework continues to be a leading climate-risk disclosure standard for companies, and it may inform the expanded SEC climate-related disclosure rule expected later this year or early next.
  • What’s next: MBA staff will analyze the 2021 Status Report and notify members of any disparate impacts on commercial real estate finance. 

White House Releases Climate Finance Report

On October 15, the White House released their Climate Finance Report, which lays out a “comprehensive government wide strategy to measure, disclose, manage and mitigate the systemic risks climate change poses to American families, businesses, and the economy.” The report outlines six main strategies, including promoting the resilience of the U.S. financial system to climate-related financial risk; protecting life savings and pensions from climate-related financial risk; using Federal procurement to address climate-related financial risk; incorporating climate-related financial risk into Federal financial management and budgeting; incorporating climate-related financial risk into Federal lending and underwriting; and building resilient infrastructure and communities.

  • Why it matters: While the report outlines items to build a comprehensive strategy to address climate change risks, the policy recommendations focus principally on individual agencies mitigating their own impacts on climate change by altering in-house procedures and exploring/studying the possibilities for larger change.
  • What’s next: MBA staff will monitor the federal agencies for any subsequent climate-related action which may impact MBA members.

MBA Green Lending Roundtable Holds Monthly Meeting

MBA on Wednesday hosted a virtual meeting of its Green Lending Peer Business Roundtable that featured a presentation by JBG Smith on their approach to achieving carbon neutrality, a brief update on MBA’s inaugural CREF Green Lending Survey, and a policy update by MBA staff on climate and environmental, social, and governance (ESG)-related issues. The Green Lending Roundtable is a forum for commercial/multifamily lenders’ staff who are focused on green lending to come together, hear about the latest trends, share information, and network.

  • Why it matters: MBA members are encouraged to participate in the Green Lending Peer Business Roundtable and collaborate with MBA staff on ESG and climate-related policy initiatives.
  • What’s next: MBA’s Green Lending Roundtable meets monthly. 

For more information or to get involved in climate and ESG policy, please contact Adrian Ballinger at (202) 557-2774.

6. 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.

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

  • CFPB’s New AVM Guidelines – How to Be Prepared – November 3
  • Are We There Yet? CRE and LIBOR Transition Check-Up – November 4
  • Understanding the Surge in Single-Family Rentals – November 4
  • The Impact of Increased Enforcement on Marketing Compliance – November 18
  • Rental Housing Perspectives: Low-Income Housing Tax Credit Landscape – November 30
  • Commercial Real Estate Tech Tools & Trends – December 1

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.