CREF Policy Update: July 6, 2023

1. FHA Increases Multifamily Large Loan Limit Threshold to $120 Million

Last Wednesday, the Federal Housing Administration (FHA) published a Mortgagee Letter that increases the threshold for what it considers a large loan from $75 million to $120 million. FHA said the increase – the first since 2014 – is “designed to simplify underwriting for multifamily housing development without presenting undue risk to FHA, and to provide for regular adjustments to the threshold so it does not unduly lag market changes.” FHA said that it will review the threshold on an annual basis, with the possibility of increasing it in $5 million increments, if warranted.

-Why it matters: MBA has long advocated for FHA to increase the threshold for large loans, citing labor and supply shortages, higher construction costs, and the importance of having loan limits that are consistent with economic conditions. In a press statement following the announcement, President and CEO Bob Broeksmit, CMB, said, “HUD’s increase to the large loan limit threshold – the first adjustment since 2014 – will help facilitate the production of more market and affordable rental housing units at a time when supply is desperately needed in markets across the country.”
-What’s next: MBA and other industry stakeholders have met with the Biden administration numerous times over the last several months on the topic of affordable rental housing and tenant protections and have stressed the importance of increasing affordable housing supply and avoiding unnecessary regulations such as rent control. In May, MBA led a coalition of real estate trade groups in a letter sent to Senator Bob Menendez (D-NJ) in support of his draft legislation to increase the statutory caps on FHA multifamily loans. MBA will continue to work with the Administration and members of Congress on this issue and others pertaining to affordable rental housing.

For more information, please contact Megan Booth at (202) 557-2740.

2. Florida Law Banning Certain Foreign Borrowers Effective July 1st; Lack of State Guidance and Tools Creates Risk for Real Estate Finance Industry

Florida Senate Bill 264 was signed into law on May 9th by Governor Ron DeSantis, and will go into effect tomorrow, July 1st. The new statute prohibits the purchase (or knowing sale) of certain real estate to a foreign principal or entity from China, Russia, Iran, North Korea, Cuba, Venezuela, and Syria. Covered real estate includes farm properties, properties within 10 miles of a military installation or critical infrastructure, and any property purchased by individuals or entities associated with the People’s Republic of China or the Chinese Communist Party.

-Why it matters: Violations of the law can result in forfeiture of the property, while compliance with the law could raise fair housing risks. Given that there is no official compliance guidance from the State of Florida, the industry is relying on its own tools. MBA members can use a breakdown on the three key sections of the law that is available from the Florida Association of Realtors as well its sample amended “AS IS” Residential Contract For Sale And Purchase. Additionally, the Florida Land Title Association has made available its draft suggested affidavits provided to the Florida Real Estate Commission. The Commission, however, has not yet finalized that process and the forms are only recommendations to mitigate the risk of violation of the new requirements.
-What’s next: A lawsuit filed earlier this month in the U.S. Court for the Northern District of Florida asks for a preliminary injunction against implementation on the grounds that the statute violates the federal Fair Housing Act and the U.S. Constitution’s Equal Protection Clause. Earlier this week, the U.S. Justice Department submitted a “statement of interest” supporting the request. MBA will continue to work with the MBA of Florida to monitor events and provide updates on any developments.

For more information, please contact Liz Facemire (202) 557-2870 or Gabriel Acosta at (202) 557-2811.

3. Federal Reserve Releases Results of Annual Bank Stress Test

On Wednesday, the Federal Reserve released the results of its 2023 Stress Test for the 23 largest banks. As part of its supervision efforts, the Federal Reserve conducts an annual stress test that assesses how large banks are likely to perform under hypothetical, stressed economic conditions. One focus of the test looks at the impact of a recession on commercial real estate lending.

-Why it matters: The stress test analyzed how large banks would handle a 40 percent decline in commercial real estate prices as well as a sharp increase in office vacancies and other changes coming from a hypothetical severe economic downturn. According to the Fed, the stress test “demonstrates that large banks are well positioned to weather a severe recession and continue to lend to households and businesses even during a severe recession.” While the results of the stress test did show large banks can absorb heavy losses in the commercial real estate sector, in a press release on Wednesday, Fed Vice Chair Michael Barr said, “We should remain humble about how risks can arise and continue our work to ensure that banks are resilient to a range of economic scenarios, market shocks, and other stresses.”
-What’s next: The Federal Reserve will outline plans to overhaul capital and liquidity rules later this summer, which would initiate a rule rewriting process for banking regulators. MBA will follow developments closely and communicate all relevant information to members.

For more information, please contact Jamie Woodwell at (202) 557-2936 or Stephanie Milner at (202) 557-2747.

4. Federal Agencies Finalize Policy on Commercial RE Loan Accommodations and Workouts.

Last Thursday, the Federal Reserve, Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA) published their final policy notice on properly managing risk in commercial real estate loan workouts. This policy was updated to include implementation of CECL accounting standards, directionally is very similar to what was issued in proposed form last year, and maintains the historic position that financial institutions should work prudently with borrowers facing financial hardship.

-Why it matters: This policy was updated to include implementation of Current Expected Credit Losses (CECL) accounting standards and helps the banking agencies and financial institutions work with commercial borrowers facing financial hardship. The policy continues to stress that financial institutions work prudently with borrowers who are facing financial hardship and is little changed from previous regulatory guidance.
-What’s next: MBA will continue to work with the agencies to ensure their policies help and don’t create hardship for commercial real estate finance markets.

For more information, please contact Megan Booth at (202) 557-2740.

5. LISTEN: HousingWire Podcast Interview with MISMO President David Coleman

MISMO President David Coleman recently recorded a podcast interview with HousingWire Editor in Chief Sarah Wheeler about the evolution of mortgage technology, MISMO’s recent initiatives, and how data standards will continue to transform the industry.

-Why it matters: Coleman discussed a wide range of topics, including MISMO’s role as a hub for data standards, process standards, and a forum for industry professionals to solve industry challenges through collaboration. He also discussed the evolution of valuation and appraisals and the increased interest across the industry in tech and machine learning.
-What’s next: MISMO will hold its Fall Summit on September 18-21, 2023, for four days of workgroup meetings, panel discussions, and planning sessions. To register, visit MISMO.org.

For more information, please contact David Coleman at (202) 557-2814.

5. Rent Control Map and State Trackers

Given the ongoing proposals and ballot initiatives across the country, MBA has published an online map that provides an overview of state and local rent control laws. MBA will follow ongoing developments on this issue and will update the map accordingly.

For more information, please contact William Kooper at (202) 557-2737.

6. Upcoming MBA Education Webinars on Critical Industry Issues

MBA Education continues to deliver timely single-family and commercial/multifamily 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:

-Mastering Revenue Metrics of Construction to Permanent Loans – July 18
-Managing Costs and Compliance of Lead Generation in a Purchase Market – July 19
-Office Doldrums: Challenges, Opportunities, and Nuances – July 26
-How to Leverage ChatGPT and Other Generative AI Platforms to Safely Improve Borrower Experiences – July 27
-Budgeting and Financial Planning for Non-Believers – August 22
-C-PACE Financing 101: A Commercial/Multifamily Lender’s Overview – August 23

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

For more information, please contact David Upbin at (202) 557-2931.