CREF Policy Update Sept. 23, 2021

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

Last Tuesday, the U.S. Treasury Department and FHFA announced they are suspending certain limits on the business activities of the GSEs. Then on Wednesday, FHFA announced a Notice of Proposed Rulemaking proposing amendments to the Enterprise Regulatory Capital Framework Rule. And several House committees completed their respective portions of a proposed $3.5 trillion Fiscal Year 2022 tax and budget reconciliation package.

Late last week MBA released a new environmental scan on affordable rental housing.

1. Treasury and FHFA Suspend PSPA Multifamily Caps and Other Key Limits on GSE Activities; Align with MBA Recommendations

Last Tuesday the U.S. Department of the Treasury and the Federal Housing Finance Agency announced they are suspending certain limits on the business activities of Fannie Mae and Freddie Mac (the GSEs). Tuesday’s suspension of certain provisions of the Preferred Stock Purchase Agreements (PSPAs) removes restrictions on the purchase of certain GSE loans. Specific to multifamily, FHFA announced that the suspension pauses the rolling 52-week, $80 billion multifamily caps that had been added to the PSPAs on January 14, 2021. While the suspension remains in effect, the Enterprises will be subject to the multifamily cap FHFA has established as conservator, currently set at $70 billion each for 2021. MBA had been advocating for these changes since they were put into place in January.

• Why it matters: These problematic limits had been a focus of intense MBA advocacy since their adoption in January, and their suspension is directly responsive to recommendations made by MBA. The suspension paves the way to restore appropriate regulatory authority to the FHFA.
• What’s next: While these suspensions are in effect, Treasury and FHFA will consider further revisions to the PSPAs and monitor the risks and performance of the GSEs. MBA will remain at the forefront of industry advocacy to ensure that any future changes to these agreements support sound, robust, multifamily mortgage markets.

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

2. FHFA Announces Amendments to the GSE Capital Rules

Last Wednesday FHFA announced a Notice of Proposed Rulemaking (NPR) proposing amendments to the Enterprise Regulatory Capital Framework Rule that applies to Fannie Mae and Freddie Mac.

• Why it matters: Specifically, the NPR would revise the Prescribed Leverage Buffer Amount (PLBA) and the capital treatment of Credit Risk Transfers (CRTs). FHFA is proposing a recalibration of the PLBA because a consistently binding leverage ratio could lead to perverse outcomes at the Enterprises, including promoting risk-taking and creating disincentives for CRT and other forms of risk transfer. The proposed rule would replace the fixed 1.5% PLBA with a dynamic leverage buffer determined annually and equal to 50% of an enterprise’s stability capital buffer.
• What’s next: MBA will review the NPR and work with members to develop and submit a response.  

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

3. House Ways and Means Committee Action Advances Tax Portion of Reconciliation Package

The House Ways and Means Committee marked up key provisions related to infrastructure financing and community development, as well as a series of corporate and individual tax provisions last week. These specific “pay-fors” included, among other items, changes to small-business “pass-through” deduction tax rules (Section 199(a)) by limiting the deduction to $500,000 for joint filers and $400,000 for individual filers, raising the corporate tax rate, raising the top marginal personal income tax rate, raising the capital gains rate, and reforming international tax rules.

• Why it matters: Importantly, the Ways and Means list of revenue raisers did not alter current tax treatment for Section 1031 Like-Kind Exchanges or include a Biden administration proposal on estate taxes and the treatment of “stepped-up” basis.
• What’s next: While House Democrats have settled on pay-fors, there is no indication that Senate Democrats will simply rubber-stamp what the House prefers (including the overall size and scope of the final package). Senate Democratic leaders, including Finance Committee Chairman Ron Wyden (D-OR), are expected to reveal their own set of alternative tax proposals to complement/counter the Ways and Means package in the coming days and weeks.

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

4. House Financial Services Committee Holds Reconciliation Markup 

Last Monday and Tuesday, the House Financial Services Committee considered several bills, including the panel’s portion of a proposed $3.5 trillion budget reconciliation package. The committee voted along party lines to adopt a $322 billion package of increased spending for housing and other programs, in addition to emergency rental assistance program legislation.

• Why it matters: Included in the HFSC reconciliation package are targeted funding streams for federally backed mortgage “innovations,” including a Federal Housing Administration (FHA) small-dollar mortgage pilot program and a new 20-year mortgage product for first-generation homebuyers, a HUD program for first-generation homebuyer down payment assistance and housing counseling, green housing, and fair housing enforcement (among other investments). MBA’s letter on certain housing provisions included in the legislation can be found here.
• Also included in the markup were legislative proposals offered by both the majority and minority offices, including H.R. 5196, the Expediting Assistance to Renters and Landlords Act of 2021, as introduced by Chairwoman Maxine Waters (D-CA), and H.R. 3913, the Renter Protection Act of 2021, as introduced by Ranking Member Patrick McHenry (R-NC). MBA signed a joint trade association letter to House Financial Services Committee leadership in advance of the markup, which outlined recommendations to implement improvements to the distribution of ERAP funds to renters and landlords in need.
• What’s next: Timing on floor consideration of the $3.5 trillion proposal is unclear, as House and Senate leadership — as well as the White House — have been heavily engaged in negotiations on the tax reform, drug pricing, clean energy provisions, and the total size of the package. Leaders will need to carefully navigate differences between the centrist and progressive sects of the party before a concrete timeline and strategy emerge.

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

5. MBA Releases New Environmental Scan on Affordable Rental Housing

MBA’s Affordable Housing Initiative, CONVERGENCE, released the results of an environmental scan on affordable rental housing. MBA staff members solicited advice and guidance from members and numerous affordable rental housing stakeholders, including policymakers, industry participants, advocates, and other thought leaders. To view the results of the environmental scan, click here.

• Why it matters: The findings reveal the stubborn reality of a rental affordability crisis that continues to challenge renters and our nation’s housing markets. At the state and local level, market conditions, public budget decisions, and longstanding policy approaches have created impediments to making significant progress against these challenges. The scan reveals that in many ways, the affordability crisis is worsening, exacerbated by the rise in unemployment and lost wages due to the economic downturn caused by the COVID-19 pandemic.
• What’s next: The environmental scan will help inform affordable rental housing stakeholders’ decisions on where to invest time, energy, and resources in the affordable rental housing area. MBA’s Affordable Rental Housing Advisory Council is actively analyzing the current challenges of affordable multifamily housing and exploring possible solutions to the concerns. And through CONVERGENCE, MBA and its members are working with public, private, and nonprofit partners to move the needle.

For more information, please contact Steve O’Connor at (202) 557-2867 or Katelynn Harris Walker at (202) 557-2734.

6. HUD Publishes 2021 Annual Indexing of Substantial Rehabilitation Threshold 

HUD recently published the Annual Revisions to Base City High-Cost Percentage, High-Cost Area and Per Unit Substantial Rehabilitation Threshold for 2021.

• Why it matters: HUD published a Housing Notice and Mortgagee Letter.
• What’s next: MBA will work with members to review these updates.

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

7. SEC Examining Increasing Transparency to Mortgage Market

Last Tuesday, in prepared remarks for the U.S. Senate Committee on Banking, Housing, and Urban Affairs, U.S. Securities and Exchange Commission Chairman Gary Gensler highlighted that SEC staff is examining increasing transparency to the non-Treasury fixed-income market, which includes securities backing mortgages.

• Why it matters: The Chairman’s remarks indicate potential future SEC actions regarding disclosure or transparency requirements for commercial real estate finance members.
• What’s next: MBA staff will continue to monitor the SEC and other regulatory agencies.

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

8. CLIMATE/ESG Updates

President Biden Commits to Reducing U.S. Methane Emissions

The White House has announced, along with the European Union, a commitment to reduce methane emissions by 30 percent by the end of the decade. The announcement followed the Major Economies Forum on Energy and Climate (MEF) meeting, a closed-door gathering of world leaders on climate. The methane commitment comes at a critical time before the United Nations Climate Change Conference (COP 26) in Glasgow, Scotland, where world leaders will conduct further climate negotiations.

• Why it matters: The commitment to reduce methane emissions could lead to additional regulatory action that could have an indirect or direct impact on commercial real estate finance.
• What’s next: The COP 26 takes place November 1-12, 2021.

MBA Green Lending Roundtable Holds Monthly Meeting

Last Wednesday MBA hosted a virtual meeting of its Green Lending Roundtable that featured group discussions as well as updates on ongoing efforts that MBA and the Mortgage Industry Standards Maintenance Organization (MISMO) are doing in the green lending and environmental, social and governance space. At the meeting, MISMO staff briefed MBA members on group efforts to develop standards to support green lending borrower-level questionnaires for the commercial real estate finance community. Additionally, MBA staff provided updates to members on an upcoming ESG webinar series, ESG 101, starting on October 12, 2021, that MBA is hosting with Ernst & Young. MBA’s Green Lending Roundtable is a forum for MBA members to gather and share information on emerging investor expectations and appetites on climate risk and ESG, and to identify policy and other trends and conditions in climate and ESG investing.

• Why it matters: Members are encouraged to participate in MISMO’s efforts to standardize green lending data as well as attend MBA’s ESG webinar series event in October.
• What’s next: MBA’s Green Lending Roundtable meets monthly and the first ESG event will be on October 12, 2021.

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

9. Commercial and Multifamily Mortgage Delinquencies Continue Downward Trend   

According to two MBA reports released last week, delinquency rates for mortgages backed by commercial and multifamily properties continue to decline. The findings come from MBA’s Commercial Real Estate Finance Loan Performance Survey for August, and the latest Commercial/Multifamily Delinquency Report for the second quarter of 2021.

• Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research, said, “Delinquency rates for mortgages backed by commercial and multifamily properties have broadly improved in recent months as the U.S. economy continues to heal from the COVID-19 pandemic. Performance is still property type-dependent, with the properties that saw the most immediate and dramatic impacts from the pandemic – lodging and retail – still experiencing considerably more stress than others but showing improvement. Delinquency rates are down significantly for those property types and remain muted for others.”  
• What’s next: “There should be continued downward pressure on delinquency rates as more later-stage delinquencies are worked through. What happens with early-stage delinquencies will largely be a function of the broader economy,” said Woodwell.

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

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 Networking Social in Dallas

Join MBA’s mPact Servicing Advisory Committee on Thursday, September 23, for our first in-person event of the year. Get a sense of what the mPact community has to offer and take the opportunity to build valuable connections.

• Why it matters: mPact’s mission is to engage young professionals 40 years and under from all sectors of the industry to foster growth and development within MBA and the industry.
• What’s next: Register here.

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

12. 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:

• Capital Markets Update and Outlook for CMBS and Balance Sheet Lending – September 29
• Introduction and Walkthrough of MISMO’s Enhanced Logical Data Dictionary (LDD) – October 6
• Regulation F: Overview & Considerations – October 6
• Increasing Profitability: Transitioning to Delegated Underwriting and Improving Loss Mitigation – October 7
• Are We There Yet? CRE and LIBOR Transition Check-Up – November 4

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

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