CREF Policy Update: July 21, 2022
Mike Flood mflood@mba.org; Bill Killmer bkillmer@mba.org
Commercial and multifamily developments and activities from MBA relevant to your business and our industry.
Last Monday, MBA and a broad coalition of business interests sent a joint letter to congressional leaders stressing strong opposition to tax increases targeted at “pass-through” small business entities. Also on Monday, a federal judge signed a court order that stipulated that March 31, 2023, is an appropriate deadline for the CFPB to issue its small business lending data collection rule. And last Wednesday, the House Financial Services Committee’s Subcommittee on Consumer Protection and Financial Institutions held a hearing on the banking agencies’ joint proposal to modernize the Community Reinvestment Act.
Also last week, Senator Joe Manchin, D-W.V., was reported to have cast serious doubt on the future of tax provisions as part of any “slimmed-down” Build Back Better reconciliation package.
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MBA, Coalition Urge Congress Not to Raise Taxes on “Pass-Through” Small Businesses; Manchin Reportedly Rejects Tax Increase Elements in Ongoing Reconciliation Negotiations
In recent weeks, President Joe Biden’s signature tax and reconciliation proposal has come into sharper focus on Capitol Hill, with Democrats hoping ongoing negotiations between Senate Majority Leader Chuck Schumer (D-NY) and Senator Joe Manchin (D-WV) might finally produce a revised, “slimmed-down” agreement to advance key elements of the administration’s Build Back Better economic agenda. On Monday, MBA and a broad coalition of business interests sent a letter to congressional leaders stressing strong opposition to proposals that would increase taxes on “pass-through” small business entities. A copy of the letter can be found here.
- Why it matters: As the top-line amount of revenue and spending in any politically viable package shrinks, congressional leaders have been considering various “pay-fors,” including expanding the 3.8% Net Investment Income Tax (NIIT) to apply to a broader array of S Corps, LLCs, and other small business “pass-through” entities – including businesses owned and managed by MBA commercial/multifamily members.
- What’s next: Reports indicate that yesterday Senator Manchin rejected a package of proposed energy-and climate-related investments – to be paid for by tax increases such as a NIIT expansion and/or a minimum book tax on GAAP income – in favor of an even smaller package that would instead reduce prescription drug prices and extend expiring health care subsidies. MBA will remain closely engaged with key lawmakers as these discussions continue between now and the end of the current fiscal year (September 30, 2022).
For more information, please contact Ethan Saxon at (202) 557-2913 or Tallman Johnson at (202) 557-2866.
Judge Sets Deadline for Final CFPB Small Business Lending Data Collection Rule
On Monday, a federal judge signed a court order that stipulated that March 31, 2023, is an appropriate deadline for the Consumer Financial Protection Bureau (CFPB) to issue its small business lending data collection rule. The rule was mandated by Congress as part of the 2010 Dodd-Frank Act.
- Why it matters: MBA led industry comments in January 2022 in response to the CFPB Notice of Proposed Rulemaking (NPR). Among other comments, the letter urged the CFPB to exempt loans to finance commercial and multifamily investment properties. As proposed, the rule would exempt only 1-4-unit residential investment properties.
- What’s next: The court order does not bar the CFPB from issuing a final small business reporting rule anytime prior to March 31, 2023. MBA will continue to follow developments as the CFPB works to publish its NPR.
For more information, please contact Grant Carlson at (202) 557-2765.
House Panel Examines Interagency Proposal on Community Reinvestment Act (CRA) Reforms
On Wednesday, the House Financial Services Committee’s Subcommittee on Consumer Protection and Financial Institutions convened a hearing titled, “Better Together: Examining the Unified Proposed Rule to Modernize the Community Reinvestment Act.” Democrats persistently raised the theme of historical redlining and the need for CRA updates to focus on race and ethnicity as a determining factor in related evaluations. Republicans countered that basing CRA exams on anything other than geographical focus would likely be unconstitutional (absent explicit statutory changes).
- Why it matters: On May 5, 2022, the Federal Reserve, Office of the Comptroller of the Currency (OCC), and Federal Deposit Insurance Corporation (FDIC) announced a joint proposal to “strengthen and modernize” the CRA. The proposed rule includes changes to the types of activities that qualify for CRA credit and the methodology for evaluating a bank’s activity.
- What’s next: Congress is likely to continue pressuring regulators to finalize the rule in the coming months. MBA is gathering member feedback and will submit a comment letter.
For more information, please contact Borden Hoskins at (202) 557-2712, Alden Knowlton at (202) 557-2741, or Grant Carlson at (202)-557-2765.
Michael Barr Confirmed as New Vice Chair for Supervision
On Wednesday, the Senate voted 66-28 in two separate votes to confirm the nomination of Michael S. Barr to serve a four-year term as Vice Chairman for Supervision of the Board of Governors of the Federal Reserve System. He will also serve a 10-year term as a “rank and file” member of the Federal Reserve Board.
- Why it matters: The Fed is implementing a much more aggressive approach at combatting inflation through a series of anticipated interest rate hikes. Barr’s confirmation gives the Fed a full Board membership for the first time since 2013.
- What’s next: The Fed will continue to use its monetary policy levers to try to instigate a “soft landing” for the economy, focusing on taming inflation without too much disruption to labor markets. Barr is expected to lead the Fed’s evaluation of the risks that large financial institutions pose to economic stability during a recession.
For more information, please contact Ethan Saxon at (202) 557-2913 or Tallman Johnson at (202) 557-2866.
LIBOR Transition Fallback Rates to Be Published; ARRC Releases Guide on Legacy LIBOR-Based Cash Products
Earlier this week, the Alternative Reference Rates Committee (ARRC) – the group convened by the Federal Reserve to facilitate the transition away from the London Interbank Offered Rate (LIBOR) – welcomed the announcement that Refinitiv will begin publishing fallback rates based on the Secured Overnight Financing Rate (SOFR) in September 2022. Separately, the ARRC released its LIBOR Legacy Playbook – a guide that provides tools and resources to assist market participants with the transition for existing, LIBOR-indexed loans.
- Why it matters: The fallback rates published by Refinitiv will serve as the ARRC’s recommended fallback rates. For legacy contracts in which ARRC-recommended fallback language was incorporated, these contracts will convert to the SOFR-based rates published by Refinitiv upon the cessation of LIBOR, which is expected on June 30, 2023. The LIBOR Legacy Playbook, meanwhile, addresses three important areas of focus for market participants to ensure a smooth transition for existing loans: contract assessment, contract remediation, and fallback communication and implementation.
- What’s next: Refinitiv will publish indicative prototypes of the fallback rates through June 30, 2023, which will allow servicers to transition and test their systems. With less than a year before the expected cessation of LIBOR, servicers should be in advanced planning for the transition of existing, LIBOR-indexed loans. MBA will continue to work with regulators and market participants to ensure a smooth transition.
For more information, please contact Grant Carlson at (202) 557-2765.
State Trackers
For more information, please contact William Kooper at (202) 557-2737 or Grant Carlson at (202) 557-2765.
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:
- Tech Stack Optimization: Analyzing Efficiencies in the Current Economic Landscape – July 19
- Mortgage Servicers: Take Back Control to Accelerate and Modernize Borrower Communications – July 21
- Special Purpose Credit Program Toolkit: Overview and Walkthrough – July 21
- Managing Single-Family Retail Originations in Today’s Volatile Mortgage Market – July 27
- Commercial Real Estate Property Insights – Where Are We Now? – August 11
MBA members can register for any of the above events and view recent webinar recordings.
For more information, please contact David Upbin at (202) 557-2931.
