MBA Urges Treasury to Simplify Rules, Regulations

The Mortgage Bankers Association, in a letter to the Treasury Department, said Administration efforts to establish core principles for financial services regulation should focus on simplifying rules, providing greater clarity and certainty and mitigating supervisory burdens, with a special emphasis on easing regulatory burdens for commercial real estate/multifamily lenders and servicers.

“MBA has consistently supported reasonable requirements that will prevent a reemergence of housing and market disruptions,” wrote MBA President and CEO David Stevens, CMB. “We believe some aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act and other statutes have made the mortgage market safer; however, in many other respects the Dodd-Frank rules have reduced the availability and affordability of mortgage credit for many American families. While we believe some of these new regulations were needed, the pendulum has swung too far and certain aspects of the current regulatory regime warrant review and adjustment.”

In February, President Trump issued an Executive Order (https://www.whitehouse.gov/the-press-office/2017/02/03/presidential-executive-order-core-principles-regulating-united-states) aimed at reducing the number of government regulations. The Executive Order establishes Core Principles in a manner consistent with the following principles of regulation:

(a) empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;

(b) prevent taxpayer-funded bailouts;

(c) foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;

(d) enable American companies to be competitive with foreign firms in domestic and foreign markets;

(e) advance American interests in international financial regulatory negotiations and meetings;

(f) make regulation efficient, effective, and appropriately tailored; and

(g) restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.

The MBA letter to Treasury Secretary Steven Mnuchin outlines current regulatory barriers that hamper the industry’s ability to serve customers and presents recommendations as part of the Core Principles, including the Consumer Financial Protection Bureau’s approach to rules and enforcement, the CFPB’s Ability to Repay Rule and Qualified Mortgage standards, servicing market regulations, Basel III, small lender burdens and commercial and multifamily lending concerns.

“These changes need to be considered judiciously to balance the need for appropriate consumer protections while ensuring access to safe, sustainable mortgage credit,” MBA said. “In this regard, we strongly urge that particular attention be given to simplifying rules, providing greater clarity and certainty and mitigating supervisory burdens. These goals are particularly important for smaller, community lenders that may not be able to sustain excessive compliance and legal infrastructures.”

Specific to the commercial real estate/multifamily sector, MBA outlined the following recommendations:

High Volatility Commercial Real Estate Loans
MBA said the final Basel III risk-based capital rule issued by banking agencies treats commercial acquisition, development or construction loans as “High Volatility Commercial Real Estate” if certain parameters are not met. Loans characterized as HVCRE are subject to a 150 percent risk weight (12 percent capital).

“The specifications of the HVCRE rule are overly restrictive and allow for too much interpretive ambiguity,” MBA said. “Based on the experience of our members, we have seen that this has resulted in inconsistency and confusion around the application of the rules, and unwarranted increases in costs to borrowers. To provide clarity to banks and to align HVCRE treatment with factors affecting credit risk, MBA recommends that the banking agencies modify the rule.”

HMDA Reporting on Multifamily Lending
MBA noted historically, mandatory data collection requirements under the Home Mortgage Disclosure Act applied only to single-family mortgage lending. However, current Regulation C, as amended by the CFPB, requires lenders to report data on applications for multifamily mortgages (including business-to-business loans). MBA recommended Regulation C be amended to exclude commercial mortgage loans secured by multifamily properties and commercial loans secured by dwellings from HMDA reporting.

Risk Retention for Commercial Real Estate
The final risk retention rule under Dodd-Frank became effective in December for the commercial mortgage-backed securities market. MBA said while the final rule was improved significantly from the initial 2011 proposal, additional improvements are needed to avoid an unnecessarily restrictive impact on the CMBS market.

“For example, flexibility would be enhanced by permitting a senior/subordinate structure for purchasers of the horizontal ‘risk retention’ residual interest,” MBA said. “We also remain concerned that the underwriting metrics for zero risk retention for CRE loans specified in the current rule remain unduly restrictive. In addition, single-asset single borrower CMBS should be exempt from risk retention.”

Multifamily Rental Housing
MBA recommendations on financing of multifamily housing as a category of commercial real estate are guided by the need for affordable and workforce rental housing and by the strong credit performance of multifamily loans originated by MBA lender members in the Fannie Mae, Freddie Mac, HUD/FHA-Ginnie Mae, life insurance companies, banks and more. These include:

—Support for Low Income Housing Tax Credit properties. MBA supports the successful LIHTC program, which provides for private investment in affordable housing.

—Private sector multifamily lenders should be the preferred government partners. MBA expressed concerns about the rapidly growing Treasury Federal Financing Bank loan program (Section 542), which involves government-to-government financing of FHA-insured multifamily properties through a Treasury-to-HUD loan program in lieu of private sector FHA approved lenders. MBA said should there be a workforce housing tax credit program supported by the Trump Administration and approved by Congress, distribution of such credits should include a prohibition against HFAs providing both tax credits and debt financing on the same property.