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  • Dedicated exclusively to the $5.0 trillion commercial real estate finance industry
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CREFC Responds to the FHFA’s Proposed Revisions to the Enterprise Regulatory Capital Framework

November 29, 2021

On November 23, CREFC submitted its response to the Federal Housing Finance Agency’s (FHFA’s) proposed revisions to the Enterprise Regulatory Capital (ERC) Framework for Fannie Mae and Freddie Mac, the Government Sponsored Enterprises (GSEs). The proposed revisions were the result of a change in leadership at FHFA after President Biden fired former FHFA Director Mark Calabria and replaced him with Acting Director Sandra Thompson.

As detailed below, the proposed revisions address some of the key points raised in CREFC’s response to the Enterprise capital framework proposed and finalized in 2020 under Calabria.

CREFC and its members were particularly pleased to see the following proposed changes, which also were raised in our previous letter:

  • Removal of the overall effectiveness adjustment to an Enterprise’s retained Credit Risk Transfer (CRT) exposures;
  • Replacement of the prudential floor of 10% with a prudential floor of 5% on the risk weight assigned to any CRT exposure retained by an Enterprise. This change would reduce GSE capital burdens and promote the use of CRTs to share risk with the private sector; and
  • The reduction of the Enterprises’ Prescribed Leverage Buffer Amount (PLBA), which is the GSE’s binding capital requirement. A lower PLBA better aligns the capital requirements to the amount of risk and incentivizes of CRT activity.
In addition to supporting the changes above, CREFC’s comments focused on the need to modify current multifamily capital requirements so that they more appropriately reflect the actual risk of that sector:
  • CREFC believes that the risk weights for multifamily exposure should be adjusted downward relative to single-family, given the multifamily sector’s strong historical performance and conservative underwriting over the past decade plus.
  • FHFA applies a countercyclical adjustment to single-family exposure. Given the balloon risk at maturity in multifamily loans, and therefore relatively high level of exposure for the life of the loan, FHFA should also incorporate a countercyclical adjustment for multifamily. In calculating this adjustment, CREFC would recommend using readily available data from the National Council of Real Estate Investment Fiduciaries (NCREIF), which has been producing a property-level return index – NCREIF Property Index (NPI) – since 1978.
CREFC also requested that FHFA release additional information regarding the data and assumptions underlying the proposed revisions and provide further opportunity for public comments based on that information.

The proposed revisions will likely be finalized in the next year, though the actual impact on GSE capital requirements will depend on how quickly FHFA will require the GSEs to build capital and the status of the conservatorship.

Please contact Sairah Burki or David McCarthy with any questions.

 

Contact

Lisa Pendergast
Executive Director
646.884.7570
lpendergast@crefc.org

Raj Aidasani
Senior Director, Research
646.884.7566
raidasani@crefc.org

Justin Ailes
Managing Director, Government Relations
202.448.0853
jailes@crefc.org

Sairah Burki
Managing Director, Regulatory Affairs
703.201.4294
sburki@crefc.org

David McCarthy
Managing Director, Head of Policy
202.448.0855
dmccarthy@crefc.org

Kathleen Olin
Managing Director, Industry Initiatives
202.448.0863
kolin@crefc.org

Christina Perez
Manager, Political and Government Relations
508.272.2592
cperez@crefc.org
The proposed revisions were the result of a change in leadership at FHFA after President Biden fired former FHFA Director Mark Calabria and replaced him with Acting Director Sandra Thompson.
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2021 CRE Finance Council. All rights reserved.
CREFC Comments on GSE Capital Proposal
November 29, 2021
On November 23, CREFC submitted its response to the Federal Housing Finance Agency’s (FHFA’s) proposed revisions to the Enterprise Regulatory Capital (ERC) Framework for Fannie Mae and Freddie Mac, the Government Sponsored Enterprises (GSEs). The pro

News

BREAKING: Biden Re-nominates Powell as Fed Chair; Brainard Picked for Vice Chair

November 22, 2021

This morning, President Biden announced he will nominate Jerome Powell for a second term as Chair of the Board of Governors of the Federal Reserve. Current Fed Governor Lael Brainard will be nominated as Vice Chair.

In recent days, reports indicated Biden would pick either Powell or Brainard as the next chair, providing some continuity with either decision. Staying with Powell revives the practices of a President re-nominating Fed chairs for a second term, which lapsed when Janet Yellen was not reappointed by President Trump. The move could be characterized as a return to tradition, but it also means the administration will have an easier time to confirm Powell with plenty of GOP support. Senate Banking Committee Ranking Member Pat Toomey (R-PA) already announced his support for Powell, despite a few policy differences:

While I have strongly disagreed with Chairman Powell’s decision to continue the Fed’s emergency accommodative monetary policy—long after the economic emergency had passed—Chairman Powell’s recent comments give me confidence that he recognizes the risks of higher and more persistent inflation and is willing to act accordingly to control it. I look forward to supporting his confirmation.
Biden likely will draw fire from the left, as some progressives have opposed his nomination, including Sen. Elizabeth Warren (D-MA), who called Powell a “dangerous man”. Senators Jeff Merkley (D-OR) and Sheldon Whitehouse (D-RI) also came out against Powell. However, Senate Banking Committee Chair Sherrod Brown (D-OH) seemed to support Biden’s decision, which will likely temper progressive criticism: 
Chair Jerome Powell has led our economy through a historic pandemic, and under his and President Biden’s leadership, unemployment has fallen and workers are seeing increased bargaining power. The Federal Reserve must continue to help steer our economic recovery in the right direction – toward full employment and an economy that empowers workers and their families. I look forward to working with Powell to stand up to Wall Street and stand up for workers, so that they share in the prosperity they create
Brainard also won praise from Brown. While Toomey noted his concerns with Brainard’s regulatory policies, her nomination to Vice Chair is unlikely to draw fierce GOP opposition, especially since she is already a voting member of the Board.

Three Federal Reserve Board Vacancies to Go
The White House press release gave an early December timeline to name nominees who will fill three vacancies on the Fed’s Board of Governors, which includes an open seat, the seat Randy Quarles will vacate at yearend, and current Vice Chair Richard Clarida’s term that expires in January 2022.

The administration also has yet to name a new Vice Chair of Supervision to serve as the Fed’s lead banking regulator. The position has been vacant since Quarles’s term as Vice Chair expired in October. There was speculation that Brainard would be selected for the post before being nominated at the Vice Chair of the Board. Biden is expected to announce his plans on the Vice Chair of Supervision along with additional nominees in early December.

The new slate of nominees could tip the balance of the Board to Democratic-leaning from the current dominance of Trump nominees. While the effect on monetary policy may be limited, the Board’s role as a financial regulator could lead to additional regulation and higher bank capital requirements given a majority of Biden/Obama appointees.

Contact

David McCarthy
Managing Director, Head of Policy
202.448.0855
dmccarthy@crefc.org
President Biden announced he will nominate Jerome Powell for a second term as Chair of the Board of Governors of the Federal Reserve. Current Fed Governor Lael Brainard will be nominated as Vice Chair.
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2021 CRE Finance Council. All rights reserved.
BREAKING: Biden Re-nominates Powell as Fed Chair; Brainard Picked for Vice Chair
November 22, 2021
This morning, President Biden announced he will nominate Jerome Powell for a second term as Chair of the Board of Governors of the Federal Reserve. Current Fed Governor Lael Brainard will be nominated as Vice Chair. In recent days, reports indicat

News

House Passes BBB, but Senate May Not Pass before Yearend

November 22, 2021

By a narrow 220-213 vote margin, the House passed President Biden’s $1.75 trillion Build Back Better Act (H.R. 5376) to create clean energy incentives, four weeks of paid parental and medical leave, child care aid, universal preschool, and Medicare drug price negotiations. President Joe Biden lauded the legislation to “boost the capacity of our economy and reduce costs for millions of families.” The bill now moves to the Senate, where Majority Leader Chuck Schumer (D-NY) wants to pass the legislation by Christmas, but as Politico reports, “standing in his way is the chamber's long to-do list, its rules referee, and — more likely than not — Joe Manchin.”

Speaker Nancy Pelosi (D-CA) called the legislation "monumental, it's historic, it's transformative, it's bigger than anything we've ever done," at a press conference shortly after Friday morning’s vote. The 220-213 vote was supported by all Democrats, except for Rep. Jaren Golden (D-ME). No Republicans voted for the bill, which was delayed from a planned-Thursday evening vote by an eight-and a half hour speech by House Republican Leader Kevin McCarthy (R-CA) in opposition to the legislation.

BBB seeks to tackle a host of Democratic priorities on health care, education, and climate change and is a centerpiece of President Biden’s economic agenda. Axios offers a brief state-of-play, while Bloomberg BGov provides additional detail about the Reconciliation Bill in this PowerPoint deck, including an overview of the bill’s costs and offsets, key policy provisions, and proposals that were dropped or scaled back.


Congressional Budget Office’s (CBO’s) Official Cost Estimate
The Congressional Budget Office (CBO) last Thursday issued a long-awaited estimate that the bill will cause a net increase in the deficit of $367 billion from fiscal 2022 through 2031, as a result of $1.64 trillion in spending increases that are offset by $1.27 trillion in additional revenue. For technical reasons, the CBO’s estimate did not include $207 billion in revenue that the nonpartisan agency separately estimated would result from pouring roughly $80 billion into tax-enforcement efforts at the IRS, reports The Wall Street Journal.

House’s Build Back Better (BBB) Heads to the Senate
The legislation now moves to the Senate where “timing for Biden's signature legislation will also depend on when the Senate parliamentarian finishes the so-called “Byrd Bath” process, under which she determines whether key components of the bill have direct budgetary effect and can therefore pass the Senate with a simple majority,” as Politico reports.

This week Democrats will begin presenting their arguments to the parliamentarian, and several provisions in the House bill are expected to change or get stripped entirely in the Senate, including:

  • Paid leave – House Democrats included a paid family leave provision, despite opposition by centrist Sen. Joe Manchin (D-WV) to including the policy in the package.
  • SALT Tax Deduction – Senate Democrats are divided over a provision that raises the cap on state and local tax (SALT) deductions, which primarily affects high-cost states, such as New York, New Jersey, and California. Senators Bernie Sanders (I-VT) and Bob Menendez (D-NJ) are trying to limit SALT relief for wealthy taxpayers and Senator Michael Bennet (D-CO) is opposed to any SALT relief.
  • Immigration – the bill’s immigration reform sections still need to pass muster with the parliamentarian, who has axed Democrats earlier attempts at including immigration measures in a reconciliation bill.
Amendment Curveballs…
Democrats are also watching for the amendments Republicans offer in the so-called ‘vote-a-rama’ process, which is a staple of legislation that moves through the Senate via the budget reconciliation process.

To refresh, reconciliation is a means for Congress to enact legislation on taxes, spending, and the debt limit; it requires only a majority (51 votes or 50 if the vice president breaks a tie) in the Senate and side-steps the threat of a filibuster, which requires 60 votes to overcome. Reconciliation is an expedited way to advance certain bills, such as Build Back Better. Key to reconciliation is that it can be used to pass legislation related to government spending or taxes and can’t add to the national deficit after the first decade.

While reconciliation allows bills to advance with 50 votes, it also allows senators (including those in the minority party) to offer unlimited amendments. If Republicans can peel off Senator Manchin on some of the amendments, it could drastically change the legislation. Click here for more background information on the reconciliation process.

 

Contact

 Justin Ailes
Managing Director, Government Relations
202.448.0853
jailes@crefc.org
 
David McCarthy
Managing Director, Head of Policy
202.448.0855
dmccarthy@crefc.org
Speaker Nancy Pelosi (D-CA) called the legislation "monumental, it's historic, it's transformative, it's bigger than anything we've ever done," at a press conference shortly after Friday morning’s vote. 
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2021 CRE Finance Council. All rights reserved.
House Passes BBB, but Senate May Not Pass before Yearend
November 22, 2021
By a narrow 220-213 vote margin, the House passed President Biden’s $1.75 trillion Build Back Better Act (H.R. 5376) to create clean energy incentives, four weeks of paid parental and medical leave, child care aid, universal preschool, and Medicare d

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