CREF Policy Update May 12 2022
Mike Flood mflood@mba.org; Bill Killmer bkillmer@mba.org.
On Thursday, the OCC, Federal Reserve and FDIC issued a joint notice of proposed rulemaking overhauling Community Reinvestment Act regulations. On May 4, the Federal Reserve – in a widely expected move – raised the benchmark federal funds rate and indicated plans for more 50-basis-point rate hikes in upcoming meetings. And last week, the Justice Department warned S&P that proposed changes to its capital adequacy model for insurance companies raised antitrust concerns.
Banking Regulators Propose Overhaul to the Community Reinvestment Act
On Thursday, the Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corp. issued a joint notice of proposed rulemaking overhauling Community Reinvestment Act regulations. Among other changes, the proposed rule would include a list of activities that are automatically eligible for CRA credit, a feature that MBA supported in the OCC’s short-lived revised CRA regulations in 2021.
- Why it matters: This is the first joint overhaul of the CRA in 25 years, which could significantly impact how banks achieve CRA credit and lend in the commercial and multifamily space.
- What’s next: MBA is analyzing the proposal and will develop comments based on member feedback. Comments are due by August 5, 2022.
If you or someone from your bank would like to participate in helping MBA develop our comments to regulators, please reach out to Grant Carlson at (202) 557-2765.
Federal Reserve Raises Short-Term Interest Rates Again; Announces Plans for Balance Sheet Reduction
On May 4, the Federal Reserve – in a widely expected move – raised the benchmark federal funds rate at a range between 0.75% and 1.00% and indicated plans for more 50-basis-point rate hikes in upcoming meetings in a bid to curb sky-high inflation levels. The Fed also announced plans to reduce its $9 trillion balance sheet by allowing $60 billion in Treasuries and $35 billion in mortgage-backed securities (MBS) to passively roll off the balance sheet each month.
- According to Mike Fratantoni, MBA’s SVP and Chief Economist, “As clearly signaled in the March minutes, the FOMC [Federal Open Market Committee] will move to allow $60 billion in Treasuries and $35 billion in MBS to passively roll off the balance sheet each month, gradually reducing these asset holdings from extraordinary levels. The runoff will ramp up over the course of three months, which should allow markets to absorb this excess supply. Importantly, neither the statement nor the balance sheet plan repeated the goal of returning the balance sheet to all Treasuries, and there was no mention about the potential for active MBS sales. Musing about active sales has likely increased volatility in the MBS market recently, as investors do not know how to interpret the vague signals that had been given.”
- Added Fratantoni, “MBA forecasts that the fed funds target will reach 2.5%, the neutral rate, by the end of 2022.The financial markets have attempted to price in the impact of Fed actions over this cycle, and they are likely also pricing in the economic slowdown that will result.”
For more information, please contactMike Fratantoni at (202) 557-2935.
Justice Department Warns S&P of Antitrust Concerns
Last Friday, the U.S. Department of Justice sent a letter to S&P Global, warning that its proposal to downgrade ratings from other rating agencies, in proposed changes to S&P’s capital adequacy model for insurance companies, raised antitrust concerns. The letter stated, “The Antitrust Division suggests that S&P carefully consider whether penalizing insurers that purchase securities rated by S&P’s competitors has the potential to raise barriers to entry and expansion by competitors, insulate S&P from competition, or otherwise suppress competition from rival rating agencies.”
- Why it matters: MBA raised in a comment letter to S&P last week that the proposed treatment of securities not rated by S&P could have a disproportionate impact on CMBS liquidity.
- What’s next: S&P will consider next steps on its proposal.
For more information, please contact Bruce Oliver at (202) 557-2840.
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:
- Introduction to Commercial Mortgage-Backed Securities – May 19
- New Fannie Mae and Freddie Mac Condominium and Cooperative Guideline Changes – May 24
- What Trends will Shape the Lending Space in the Second Half of 2022 – June 2
- CFPB, UDAAP and the Focus on Junk Fees – June 9
- Serving Loan Applicants with Limited English Proficiency – June 14
- Leveling Up Your Social Media Strategy with Paid Advertising – June 28
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.
