CREF Policy Update March 10, 2022

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

Last week, President Joe Biden delivered his State of the Union address to a joint session of Congress, focusing heavily on the war in Ukraine and rising inflation. Federal Reserve Chair Jay Powell appeared before both chambers of Congress, signaling to lawmakers that the Fed will lift interest rates a quarter-percentage point later this month. And on Monday, FHFA announced that the Housing Trust Fund and Capital Magnet Fund will receive $1.138 billion from Fannie Mae and Freddie Mac for affordable housing initiatives. Finally, the EU released a corporate sustainability proposal, while the U.S. Treasury held a roundtable discussion on climate change with state and local governments. 

Sign MBA’s Home for All Pledge: Join the 180+ MBA member companies that have signed MBA’s Home for All Pledge, representing a commitment to promoting affordable rental housing; minority homeownership; and company diversity, equity, and inclusion. One senior executive (e.g., CEO, COO, President) is encouraged to sign this online form on behalf of your organization.  

View Any Session You Missed from MBA CREF22: Were you one of the over 2,400 registrants that attended MBA’s Commercial/Multifamily Finance Convention & Expo? If you weren’t able to attend every session, they are available to you online for the next month. Simply access the program videos by clicking here. 

1. Fed Chair Powell Updates Congress on the State of the Economy; Commits to Upcoming Rate Hike 

On Wednesday and Thursday, Federal Reserve Chair Jay Powell testified before the House Financial Services Committee and the Senate Banking Committee as part of his statutory duty to inform Congress about the state of the economy. With war in Ukraine as a backdrop, Powell faced a barrage of questions on Russian sanctions and how they would impact inflation in the United States, especially as it pertains to supply chains and housing markets. Congress also probed the Fed Chair on several regulatory topics including cybersecurity and digital assets; the Community Reinvestment Act (CRA); and environmental, social and governance (ESG). Notably, during his opening remarks, Powell stated that the Fed is likely to raise the target range for the Federal Funds Rate later this month. In addition, he indicated that reducing the Fed balance sheet will commence after the process of raising interest rates has begun, with the Fed proceeding in a predictable manner primarily through adjustments to reinvestments. A summary of both hearings can be found here.    

• Why it matters: The Federal Reserve has quickly posited away from discussing inflation as “transitory” and is now moving toward a much more aggressive approach in fiscal and monetary policy. Housing was identified as one of the essential items that increased in cost to justify raising rates. 
• What’s next: The Fed’s Federal Open Market Committee (FOMC) is next scheduled to meet March 15 and 16.

For more information, please contact Alden Knowlton at (202) 557-2741 or Ethan Saxon at (202) 557 2913.

2. Senators Introduce Bipartisan LIBOR Transition Legislation

Yesterday, Senators Jon Tester (D-MT), Thom Tillis (R-NC), Sherrod Brown (D-OH), and Pat Toomey (R-PA) introduced legislation to provide clear guidance and a consistent federal standard for contracts with interest rates based on the London Interbank Offered Rate (LIBOR) benchmark, which is set to expire in mid-2023. It would direct the Federal Reserve to determine replacement rates that can be used for contracts lacking fallback language, by providing a safe harbor should the contract not specify a non-LIBOR replacement rate following the end of LIBOR. MBA’s advocacy helped craft the legislation, and MBA joined a coalition letter urging the Senate to swiftly pass the bill. The House passed similar LIBOR legislation in December.

• Why it matters: Fed Chair Powell, when testifying before the Senate Banking Committee on Thursday, strongly endorsed the bipartisan bill as “very important from a financial stability standpoint” and reiterated the need for rapid action on legacy LIBOR contracts.
• What’s next: The Senate is expected to pass the LIBOR legislation soon. The House would also need to pass this new version prior to sending to the President Biden’s desk for signature.

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

3. HUD Releases 2022 Annual Revisions to High Cost Percentage, High Cost Area and Per Unit Substantial Rehabilitation Threshold 

On Wednesday, the Department of Housing and Urban Development (HUD) released Mortgagee Letter 2022-05, revising the High Cost Percentage and creating a list of High Cost Areas for 2022. The letter also increased the per-unit base amount for definition as a substantial rehabilitation for loan programs insured by the Federal Housing Administration (FHA). In the letter, HUD set the threshold for a High Cost Area with a calculated High Cost Percentage of 437.99 or greater and provided a list of High Cost Areas for 2022. Also, the 2022 base amount per dwelling unit used to determine substantial rehabilitation for FHA-insured loan programs was raised from $15,000 to $16,983 and was calculated using the CPI-U cost index increase of 4.2%.

• Why it matters: Maximum Loan Limits for HUD Multifamily financing are determined by law and prescribed on a per-unit basis, with certain exceptions. With rising inflation, supply chain issues, and labor shortages, construction costs continue to rise. As a result, it is important that the statutory limits and the available exceptions are at levels that are consistent with the economic environment so that financing through HUD remains viable. The relevant exceptions to the base loan limits that can be granted by the Secretary of HUD include exceptions for geographical areas where cost levels require an exception that is equal to max limits of 170% (equivalent to a 270% multiplier), and in High Cost Areas that are equal to max limits of 215% (equivalent to a 315% multiplier) to be granted as necessary on a project-by-project basis. The new 2022 list of High Cost Areas sets forth the localities where the maximum mortgage amount will be up to 215% (equivalent to a 315% multiplier) where an exception is granted. The letter does not address the base limits themselves.  
• What’s next: MBA will conduct further analysis and work with a member working group to determine follow up questions, concerns, and next steps.

For more information, please contact Stephanie Milner at (202) 557-2747.

4. FHFA Announces More Than $1.1 Billion to Support Affordable Housing Programs 

On Monday, the Federal Housing Finance Agency (FHFA) announced that the Housing Trust Fund (HTF) and Capital Magnet Fund will receive $1.138 billion in total from Fannie Mae and Freddie Mac for affordable housing initiatives. The Housing Trust Fund, through HUD, provides grants to states and state-designated agencies to produce and preserve affordable housing for extremely low- and very low-income households. A state must use at least 80% of each annual grant for rental housing and the remainder can be used for homeownership and administrative costs. The Capital Magnet Fund awards grants to finance affordable housing and is administered by the U.S. Department of Treasury. To be eligible to apply for Capital Magnet Funds, the organization must be a certified Community Development Financial Institution (CDFI) or a nonprofit focused on affordable housing solutions.   

• Why it matters: The funds are an approximately $45 million increase over the amounts the GSEs contributed to these programs in 2021.
• What’s next: By statute, each GSE must continue to set aside an amount equal to 4.2 basis points (.042%) of their new mortgage purchases to support these affordable housing programs. MBA has long advocated for continued funding of these initiatives as a critical step toward improving housing affordability throughout the nation.

For more information, please contact Stephanie Milner at (202) 557-2747.

5. House Select Committee Holds Hearing Examining Housing Affordability  

On Tuesday, the House Select Committee on Economic Disparity and Fairness held a hearing entitled, “Promoting Economic Prosperity and Fair Growth through Access to Affordable and Stable Housing.” The hearing follows similar efforts in the House Financial Services Committee, as Congress continues to examine the role that stable and affordable housing plays in creating paths to economic security, especially in the wake of the pandemic.

• Why it matters: There is increasing interest at all levels of government to find solutions to the affordable housing crisis. The bulk of the hearing focused on the driving factors of housing and rental costs and the different approaches to remedying the costs. Democrats and Republicans alike examined government subsidies, how they are targeted, and whether they are contributing to the rising costs of rent and homeownership.
• What’s next: Please see this hearing summary for more details. MBA continues to engage with the administration and key congressional leaders and staff on local and national policy solutions aimed at addressing housing affordability.

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

6. ESG/CLIMATE Resources

European Regulator Unveils Proposal on Corporate Sustainability Due Diligence

Last week, the European Commission (EC) released its Sustainability Corporate Governance Directive (Directive), which aims to facilitate sustainable and responsible corporate behavior throughout global value chains. The Directive, if adopted, would require certain companies to identify adverse environmental and human rights impacts of their value chains, establish protocols for mitigating those impacts, and regularly report the effects of their mitigation efforts. The proposed directive would initially apply to companies with over 500 employees and more than €150 million in revenues, eventually extending to companies with over 250 employees and €40 million in revenue. Non-European Union companies with revenues earned in the EU above the thresholds will also be required to comply with the Directive.

• Why it matters: The Directive is a preview of legislation likely to be enacted in the EU, which may influence legislative and regulatory efforts in the United States.

What’s next: MBA will monitor ongoing developments in the EU related to sustainability, disclosure, and ESG that influence U.S. legislation or regulation.

Treasury Hosts Roundtable on State and Local Efforts to Address Climate Change

On Thursday, the U.S. Treasury Department hosted a roundtable with state, local, and federal officials featuring a discussion on key policies that support state and local governments in climate mitigation. The panel discussed ongoing issues with funding local climate projects, data challenges with addressing climate change, and the necessity for interagency coordination on mitigation efforts. In prepared remarks at the roundtable, Secretary Janet Yellen highlighted the necessity for enhanced climate change disclosures to address existing data challenges, stating, “[E]nhanced climate disclosures can help to address that information deficit, enabling borrowers and lenders to make decisions with more complete data.” Additionally, on the topic of private capital assisting states and localities in addressing climate change, Secretary Yellen indicated that Treasury is looking at ways to help connect capital to green projects in local communities.

• Why it matters: The roundtable is an example of the continued effort and focus on the part of the White House to address climate change.
• What’s next: MBA staff will track state and local efforts to address climate change that may impact CREF business.

For more information, please contact Adrian Ballinger at (202) 557-2774 or see MBA’s FAQs on Climate Change and ESG.

7. 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.

8. Register Today: MBA’s National Advocacy Conference – April 26-27

Registration is now open for MBA’s National Advocacy Conference (NAC) to be held April 26-27 in Washington, D.C. NAC allows you to connect directly with elected officials in our nation’s capital. Your story matters – share it with key policymakers as they consider and pass legislation that affects all of us. 

• Why it matters: The last two years have been unprecedented for millions of Americans, and the real estate finance industry is no different as we navigate new terrains. NAC gives you the opportunity to share your narrative with the key staff and decision-makers while networking with your colleagues from all over the industry. When we work together and combine our voices, we can do great things.  
• What’s next: Share your experiences, your voice, and your passion for our industry April 26-27! Register today at mba.org/nac and take advantage of the early-bird rate before the March 14 deadline.

For more information, please contact Rachel Kelley at (202) 557-2816.

8. [WATCH]: mPower Moments: Trusting Your Instincts and Promoting Wellness with FHFA Acting Director Sandra L. Thompson

In this episode of mPower Moments, mPower Founder Marcia M. Davies chats with FHFA Acting Director Sandra L. Thompson on her illustrious career in the financial services industry and the path that led her to currently being one of the most powerful and influential women in real estate finance.

• Why it matters: During this insightful interview, Director Thompson explains the importance of promoting employee wellness at FHFA and why “trusting your gut” is so important when making decisions as a leader. Additionally, Thompson provides advice on what the industry can do to get more women of color into the C-suite.
• What’s next: For more mPower Moments, please click here.

For more information, please contact Marcia Davies at (202) 557-2707.

9. 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 recent and upcoming webinars – which are complimentary to MBA members:

• Driving Engagement and Purchase Volumes in Today’s Market – March 3
• COVID’s Continued Impact on CECL and Lending – March 8
• The Future of Remote Work for MLOs and Licensees – March 9
• Combating Multifamily Real Estate Financial Crimes and Fraud – March 10
• CRE Investor Themes & Perspectives – March 16
• Tomorrow’s Servicing: Automated Transfers, Recoverables and Accuracy – March 29
• CFPB Enforcement Authority Over Student Loans and Impact on Mortgage Lending – April 21

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.