CREF Policy Update: May 4, 2023

Mike Flood mflood@mba.org; Bill Killmer bkillmer@mba.org

House Financial Services Committee Votes on CFPB Reform Legislation    

On Apr. 28, the House Financial Services Committee advanced H.R. 2798, the CFPB Transparency and Accountability Reform Act. The bill would alter the Consumer Financial Protection Bureau’s funding structure and subject the agency to the congressional appropriations process, replace the current governance structure (single Director) with a 5-member bipartisan commission, create an Office of Economic Analysis to more stringently review the costs and benefits of rulemakings, and more adequately ensure that CFPB regulations account for the requirements imposed by the Small Business Regulatory Enforcement Fairness Act. A copy of the letter MBA submitted to the Committee can be found here.      

• Why it matters: The Supreme Court will hear arguments this fall on the pending 5th Circuit case that deemed the CFPB’s funding structure unconstitutional. MBA’s policy has long called for more appropriate checks and balances as part of the agency’s governance structure.    
• What’s next: The full House may consider H.R.2798 in the coming months, but the Senate is unlikely to act on any CFPB reforms – unless/until a SCOTUS ruling on the 5th Circuit case dictates an urgent need to do so.   

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

House Passes Debt Ceiling Legislation 

On Apr. 28 the House passed H.R. 2811, the Limit, Save, Grow Act of 2023. The bill suspends the debt limit through March 31, 2024, or until the debt increases by $1.5 trillion, whichever occurs first. Additionally, the legislation, which is unlikely to be considered by the Senate, includes provisions that would establish discretionary spending levels, reclaim unspent COVID-19 money, repeal certain energy tax credits, impose work requirements for certain social programs, and subject major agency rulemakings to congressional approval for final approval.  

• Why it matters: A broad real estate coalition sent a letter last month to congressional leaders urging the White House and Congress to take steps to raise the federal debt ceiling well in advance of risking default.
• What’s next: The White House and Senate Democratic leaders have requested a one-year clean debt limit extension (with no extraneous provisions). The House GOP leadership passed H.R. 2811 in an effort to kickstart negotiations with President Biden. MBA will continue monitor the ongoing debate.   

For more information, please contact Bill Killmer at (202) 557-2736.

Senate Banking Committee Holds Housing Hearing

On Apr. 28, the Senate Banking Committee held a hearing, “Building Consensus to Address Housing Challenges.” The witnesses were: Lou Tisler, Executive Director, National NeighborWorks Association; Vanessa Brown Calder, Director of Opportunity and Family Policy Studies, Cato Institute; and Diane Yentel, President and CEO, National Low Income Housing Coalition. A summary of the hearing can be found here.   

• Why it matters: The hearing provoked discussion on a broad range of housing issues (both single and multifamily related). For example, among a range of other bills discussed, the committee’s Ranking Member, Tim Scott (R-SC), referenced his housing “framework” discussion draft legislation, which he hopes to introduce shortly. Senator Bob Menendez (D-NJ) said he will introduce new legislation (supported by MBA) to raise the statutory Federal Housing Administration (FHA) multifamily loan limits. His remarks can be viewed here.
• What’s next: The Committee may seek to markup and advance several of the bipartisan bills mentioned at the hearing in the coming weeks and months.   

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

FSOC Proposes New Interpretive Guidance on Nonbank SIFI Designation

Last week, the Financial Stability Oversight Council approved a request for public comment on new Interpretive Guidance altering the process for the determination and designation of nonbanks as Systemically Important Financial Institutions. The proposed policy reinstates FSOC’s ability to pursue an entity determination without first prioritizing an “activities-based approach,” as adopted by the Trump Administration’s 2019 Interpretive Guidance. The proposed guidance also eliminates the requirement for FSOC to ensure that a cost-benefit analysis of any risk-mitigation recommendation demonstrates an overall benefit prior to issuance of that recommendation. FSOC also proposed an Analytic Framework outlining the Council’s considerations when pursuing an entity determination. 

• Why it matters: Specific mentions of nonbank risks in the FSOC announcement were focused on money market funds, hedge funds, and crypto exposures. While those sectors potentially pose more systemic vulnerabilities and opacity risks than nonbank mortgage servicing, previous FSOC annual reports make it clear that large IMB servicers remain a concern. Under the new guidance, nonbanks could be more readily eligible for SIFI designation, as FSOC would not first be required to address systemic risk through providing additional regulatory recommendations to relevant supervisors of the market activity. Under the 2019 guidance, entity designation was only pursuable if addressing the systemic risk could not be achieved through this activities-based approach.
• What’s next: MBA will both be publishing a summary brief and commenting on the proposed Interpretive Guidance and Analytic Framework.  

For more information, please contact Hanna Pitz at (202) 557-2796.

Federal Agencies Issue Joint Statement on LIBOR Transition

On Apr. 28, the Federal Reserve Board, the Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, the National Credit Union Administration and the Consumer Financial Protection Bureau issued a joint statement to remind financial institutions that the U.S. dollar London Inter-Bank Offered Rate with end on June 30. The statement encourages institutions with LIBOR exposure to complete their transition as soon as possible.  

• Why it matters: In January, the Board published its final rule that implements the Adjustable Interest Rate (LIBOR) Act by identifying benchmark rates based on the Secured Overnight Financing Rate, which will replace the LIBOR in certain financial contracts after June 30, 2023. The final rule identifies replacement benchmark rates based on SOFR to replace overnight, one-month, 3-month, 6-month, and 12-month LIBOR in contracts, including U.S. contracts that do not mature before LIBOR ends and for those that lack adequate “fallback” language.
• What’s next: MBA will continue to engage with its members and other industry stakeholders to ensure a smooth transition as the industry moves toward the LIBOR cessation date.

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

Banking Agencies Issue Revised Policy Statement on Allowance for Credit Loss 

Last Friday, the OCC, Federal Reserve, FDIC, and NCUA issued a policy statement revising their June 2020 policy statement on allowances for credit losses in response to the Financial Accounting Standards Board’s changes to Generally Accepted Accounting Principles rules governing Troubled Debt Restructuring.  

• Why it matters: In March 2022, FASB issued ASU 2022-02, eliminating the recognition and measurement accounting guidance for TDRs by creditors upon adoption of Current Expected Credit Losses. According to FASB, because of enhanced financial statement disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty, TDR accounting would be redundant, and therefore unnecessary. Prior to March 2022, the agencies required creditors to properly apply the accounting and Call Report requirements for TDRs, which provided useful financial information about the quality of loan portfolios and an institution’s efforts to work with troubled borrowers. The revised interagency CECL policy statement removes all references to TDR, thereby ensuring that the principles outlined the policy statement “are consistent with U.S. GAAP, regulatory reporting requirements, safe-and-sound banking practices, and the agencies’ codified guidelines establishing standards for safety and soundness.” 
• What’s next: The revised statement will take effect at the time an institution adopts CECL.

For more information, please contact Fran Mordi at (202) 557-2860.

Colorado Votes Down Rent Control Bill 

Last week, the Colorado Senate Committee on Local Government & Housing voted down a bill, HB23-1115, that would allow local rent control laws across the state. MBA’s Mortgage Action Alliance issued a Call to Action in late March that urged Colorado MAA members to halt the bill. The bill, which was opposed by the Colorado Mortgage Lenders Association, would have removed Colorado’s statewide preemption of local rent control and create a patchwork of harmful and confusing local rent control laws in the state. 

• Why it matters: Research based on real-life examples, along with an overwhelming majority of economists, has concluded that rent control decreases housing affordability and creates negative spillover to the surrounding neighborhood. HB23-1115 would have removed incentives to develop new affordable housing units, leading to higher housing costs in Colorado’s rental housing market and causing undue harm to renters and the entire real estate finance industry.
• What’s next: MBA will continue to track and respond to rent control proposals and communicate all relevant information to members.

For more information, please contact William Kooper at (202) 557-2737 or Grant Carlson at (202) 557-2765.

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 or Grant Carlson at (202) 557-2765.

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 and recent webinars – which are complimentary to MBA members:

• Credit Scores – What the FHFA Announcement Means for the Mortgage Ecosystem – May 1
• MSR Transfers: Balancing Risk, Customer Experience and Efficiency – May 11
• Managing Opportunity and Risk in Volatile Economic Conditions – May 16
• Leveraging AI, Blockchain & New Technologies in Today’s Challenging Environment – May 17
• Explore Build-to-Rent Advantages, Trends & Opportunities – May 18

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.