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FHFA Tenant Protection

June 5, 2023

On May 30, the Federal Housing Finance Agency (FHFA) issued a Request for Input (RFI) on multifamily tenant protections. Comments are due July 31, 2023.

FHFA’s goals are to:

• Gather perspectives from tenants, lenders, property owners, developers, mortgage industry groups, and others on the challenges facing tenants at multifamily properties and the ways in which to address these challenges through tenant protections; and
• Improve data collection to better quantify the size and scope of challenges experienced by tenants at multifamily properties.

The RFI follows the Biden administration’s January 2023 announcement seeking to “increase fairness in the rental market and further principles of fair housing.” In conjunction with the announcement, the administration released a "Blueprint for a Renters Bill of Rights," outlining key steps federal agencies were taking in order to promote greater access to safe and affordable housing.

The Blueprint stated that FHFA and the GSEs would:

“Launch a process to conduct stakeholder outreach and engagement to identify the opportunities and challenges of adopting and enforcing tenant protections including policies that limit egregious rent increases at properties with Enterprise-backed mortgages going forward.”

CREFC will examine the RFI closely over the coming weeks and work with members to provide recommendations to FHFA.

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Insurers Retreat Under State-level Anti-ESG Pressure 

June 5, 2023

Several insurers, including Lloyds, AXA, Allianz, Munich Re, and Swiss Re, recently announced their exit from the Net-Zero Insurance Alliance (NZIA). As stated in ESG Today:

“[This marks] a major setback for the UN Environment Program (UNEP)-backed collaboration aimed at helping insurance companies accelerate the global transition to net zero greenhouse gas (GHG) emissions through their underwriting and risk management practices.”

What is the NZIA: The NZIA was created in 2021 by several insurance and reinsurance companies and, according to ESG Today, grew by early 2023 to nearly 30 members representing approximately 15% of global premium volume. It is a part of the Glasgow Financial Alliance for Net Zero (GFANZ), a UN-backed climate-focused coalition of financial institutions that also includes the Net Zero Asset Managers (NZAM) and other initiatives.

What’s happening: As reported in several CREFC Policy and Capital Markets Briefings, ESG initiatives have been under attack by a variety of constituents in the U.S., including Republican lawmakers in red states.

On May 18, according to several news outlets, including Reinsurance News, a consortium of Republican state attorneys general (AG) sent a letter to the NZIA raising concerns about the legality of its commitments to “advance an activist climate agenda” and positing anti-trust concerns.

In a recent statement regarding the exit of several insurers, the UNEP acknowledged the U.S angle of the NZIA exits:

“In light of the recent discussions within the United States, some members of the United Nations-convene…NZIA, particularly those with significant US business and exposure, have made the individual and unilateral decision to either remain or withdraw from the NZIA.” 

Yes, but: ESG Today noted that the NZIA has accounted for most of the departures from GFANZ alliances, “possibly due to unique status of the insurance industry in the U.S., which is largely regulated on a state by state basis” and therefore subject to state-level pressure. However, each of the insurers that left the NZIA remains in the Net Zero Asset Owners Alliance, a member-led initiative of institutional investors.

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Countdown to the End of LIBOR: Transition Efforts Accelerate Ahead of June 30 Deadline

June 5, 2023

It is hard to believe that nearly six years have passed since Andrew Bailey, the then-CEO of the Financial Conduct Authority (FCA), sent shockwaves through the financial world by declaring the imminent end of LIBOR. Initially slated for the end of 2021, the cessation date for the publication of most USD LIBOR settings was eventually extended to June 30, 2023, allowing for an adequate transition period.

In the U.S., the responsibility of identifying a replacement rate for USD LIBOR fell to the Alternative Reference Rates Committee (ARRC). CREFC is a member of the ARRC.

Go Deeper. After an extensive evaluation process, the ARRC selected the Secured Overnight Financing Rate (SOFR) as the preferred alternative in June 2017. Following Andrew Bailey's announcement, the ARRC was reconstituted in March 2018 to develop comprehensive strategies facilitating the transition away from LIBOR across all cash products, including loans and securitizations.

The Countdown. Ever since, market participants have renegotiated contracts, updated systems and models, and incorporated fallback provisions into new agreements. The ARRC has played a crucial role in guiding this transition, offering guidance, establishing working groups, and enforcing deadlines to ensure market participants are well-prepared for LIBOR’s cessation.

For securitizations, the ARRC selected CREFC as a co-chair of the Securitizations Working Group (SWG). This collaborative effort has fostered increased awareness and adoption of alternative rates, marking a significant shift in the financial landscape.

In their most recent statement, released on May 31, 2023, the ARRC emphasized the importance of being prepared for the end of USD LIBOR. The statement urged market participants with LIBOR exposures to complete their transition efforts now, and to draw upon the resources and tools that have been made available. The statement also warned that those unprepared for the transition will face “significant ramifications, including uncertain and potentially unfavorable outcomes regarding their legacy LIBOR contracts along with operational disruptions.”

The countdown to June 30, 2023, has begun, and the coming months will be crucial as we bid farewell to the era of LIBOR. Financial institutions and market participants must be prepared and act proactively to safeguard the integrity of financial markets. While the end of LIBOR marks a significant milestone, it also opens doors to a new and improved era. The broader market's embrace of SOFR, along with the development of market conventions and the deepening liquidity in SOFR-linked instruments, has created a solid foundation for this new era.

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CREFC Capital Markets Update Week of 6/5

June 5, 2023

• Private-Label CMBS and CRE CLOs. It was a busy two-week period for the private-label market. One SASB and one CRE CLO priced last week with three transactions, consisting of two SASBs and one conduit, pricing in the week leading up to Memorial Day weekend. The forward pipeline is robust: eight conduits totaling $7.3 billion, three SASBs totaling ~$2 billion, and four CRE CLOs totaling $2.1 billion.

• Year-to-date, private-label CMBS and CRE CLO issuance stood at $15.1 billion, 80% behind last year’s tally at this time of $75.5 billion. Benchmark CMBS spreads in the secondary market were unchanged to slightly tighter last week. LCF AAA spreads were unchanged at 150, as were BBB- spreads at 925. AA and A spreads were tighter by 20 and 10 bps to 270 and 430, respectively. AAA SASB spreads tightened 3 – 5 bps to a range of 170 – 260.
• The 10-year Treasury yield decreased 11 bps last week to 3.69%. The yield was down to 3.60% earlier in the week before surging on Friday following the release of the May jobs report. The report showed payrolls increased by 339,000 last month, well above the median estimate of 195,000. At the same time, however, the unemployment rate increased from 3.4% to 3.7%, with 440,000 more people out of a job in May, the largest monthly rise since the onset of the pandemic. The mixed nature of the report may support Fed Chair Powell’s approach to pausing interest rate hikes when the FOMC meets again on June 13-14. Futures markets are now pricing in a 25% probability that the Fed will increase rates by 25 bps at its June meeting, whereas only a week prior, the market was pricing in a 64% probability of an increase. CME 1M Term SOFR hit 5.17% during the week, its highest level of the year, before ending last week at 5.14%.
•  Agency CMBS. Agency issuance was light last week, with $280 million of new transactions. Agency issuance for 2023 now stands at $44.9 billion, 43% lower than the $78.6 billion for the same period last year.

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Debt Ceiling Deal Closes 

June 5, 2023
 
After Memorial Day weekend negotiations, the President and House Speaker Kevin McCarthy announced a debt ceiling deal that suspends the limit until January 2025 and implements a number of spending and policy reforms. The House and Senate passed the bill in short order, and Biden signed the legislation on June 3 before the June 5 “X date.”

Why it matters: The deal averts an economic crisis where the U.S. government would run out of cash and potentially default on its debt.

By the numbers: This bill increases the federal debt limit, establishes new discretionary spending limits, rescinds unobligated funds, and expands work requirements for federal programs. Highlights include:

• Debt ceiling is suspended until January 1, 2025 and increases the limit on January 2 to accommodate what has been spent. But that doesn’t mean Jan. 2 is the X date. Treasury will be able to use extraordinary measures to continue paying bills after hitting the limit.
• Spending caps for 2024 and 2025 budgets and suggested (not mandated) targets for the next 8 years. 2024 discretionary spending (non-defense) would be ~last years levels. FY 2025 would be capped at 1% growth, which amounts to a spending cut when considering inflation. The savings over 10 years is ~$1 trillion.
• Automatic spending cuts to the 2024 and 2025 budgets will occur if Congress doesn’t pass the 12 appropriation bills by end of year. This raises the stakes for Congress to get its work done, but it won’t automatically prevent a government shutdown if no agreement is reached. However, Congress could always change the rules in a continuing resolution.
• Student loan payments will restart by the end of August, but the Biden administration may still implement its $10,000 to $20,000 loan forgiveness program if the Supreme Court allows it to proceed.
• The remaining items include expanded work requirements for food and income assistance, clawing back $30 billion in unspent COVID funds, energy project permitting reform, and rescinding part of the funding increase to the IRS passed through the Inflation Reduction Act.

What they’re saying: After the deal was announced, the conservative wing of the House started to push back on the deal and complained it did not go far enough. Similarly, some Senate conservatives threatened to use procedural objections to bog down the process in that chamber. The House conservatives were unable to block the bill and the Senate negotiated votes on several amendments in order to speed up the time to vote.

Yes, but: Democratic support has always been part of the vote math here. And Dem support was critical in both chambers. The Senate passed it 63-36, with 32 GOP and 4 Dems voting “no.” The House passed it 314-117 with the following breakdown.

What’s next: The debt ceiling debacle is resolved for the next two years, but the discussion on government spending will continue as Congress rolls up its sleeves to pass appropriations.

The bottom line: The press is sorting through the political winners and losers, but Speaker McCarthy seems to have emerged without a challenge to leadership. While Biden and Democrats ultimately had to move from their hard line of a clean debt ceiling increase, some are optimistic that this deal could pave the way for other bipartisan action in a divided government.

Contact David McCarthy (dmccarthy@crefc.org)with questions. 

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President Biden signed a bipartisan debt ceiling agreement that suspends the limit until 2025.

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2024 Republican Presidential Primary Field Takes Shape

June 5, 2023

Three more Republican candidates jumped or are about to jump into the presidential race after months of “will they” or “won’t they”.

The New Candidates:

Sen. Tim Scott (R-SC): Officially launched his presidential bid on May 22, after launching an exploratory committee in April. Sen. Scott is running on a positive message as a true conservative. While Scott has a presence in the Senate and is the lead Republican on Senate Banking, he does not have a national brand. This lack of recognition could be an opportunity for Scott to introduce himself to voters with Trump fatigue and those seeking a conservative alternative to former Vice President Mike Pence.

Gov. Ron DeSantis (R-FL): The popular Florida Governor announced his bid on May 24 via Twitter. Despite a few technical difficulties, DeSantis’s format eschewed traditional media and sought to place him as the new face of the Republican party, a more palatable version of Trump. He has built a national reputation by championing conservative issues on K-12 education, abortion, and combatting “wokeness”. DeSantis has the opportunity to bring together a coalition of Republican voters who are skeptical of another Trump nomination and MAGA wing of the party, if he is willing to go after Trump directly.

Former Vice President Mike Pence (R) is set to announce his Presidential Bid on June 7th in Des Moines, IA. As a long-time ally of the evangelical wing of the party, Pence will run on a platform of traditional conservative values on both social and economic issues. Pence’s biggest challenge will be to redefine himself to voters beyond his association with Trump.

With the White House and both chambers at stake, the diverse field of candidates and how they fare in the presidential election will shape the next four years for Republicans.

The bottom line: There is still plenty of time for candidates to jump in and out of the race. August will feature the first televised debate, but candidates will introduce themselves to key primary states and voters over the summer.

If you have any questions, contact Chelsea Neil at cneil@crefc.org. 

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Congressional Committee Preview 

June 5, 2023

The House Financial Services Committee will continue its packed agenda in June with a number of committee and subcommittee hearings. The Senate Banking Committee will likely hold several panels in the slower-paced chamber.

House hearings will include testimony from Treasury Secretary Janet Yellen on June 13 and a June 21 hearing with Fed Chair Jay Powell. Later on the 21st, an oversight subcommittee will focus on the SEC. Powell likely will appear before the Senate Banking Committee that week, as well.

Week of June 5th

• 6/6 - 10:00 am: Subcommittee on Financial Institutions and Monetary Policy hearing titled, “Uncertain Debt Management: Treasury Markets and Financial Institutions.”
• 6/7 - 10:00 am: Subcommittee on National Security, Illicit Finance, and International Financial Institutions hearing titled, “Dollar Dominance: Preserving the U.S. Dollar’s Status as the Global Reserve Currency.”

 Week of June 12th

• 6/13 - 10:00 am: Full committee hearing with Secretary Yellen.
• 6/13 - 2:00 pm: Full committee hearing titled, “The Future of Digital Assets: Providing Clarity for the Digital Asset Ecosystem.”
• 6/14 - 10:00 am: Full committee hearing titled, “The Semiannual Report of the Bureau of Consumer Financial Protection.”  

Week of June 19th

• 6/21 – 10:00am: Full committee hearing – Powell and 2:00pm: Subcommittee on Oversight and Investigations hearing titled, “SEC Oversight.”
•  6/22 – 10:00am: Subcommittee on Capital Markets hearing on equity market structure and 2:00 pm: Subcommittee on Housing and Insurance hearing with HUD IG.

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DE&I State of the Market Survey 2023

June 5, 2023

We are excited to announce this inaugural DE&I State of the Market Survey, alongside Real Estate Capital USA.

The insights collected from this survey will help us gain a better understanding of the DE&I landscape in commercial real estate finance, as well as benchmark the scope and impact of diversity, equity, and inclusion programs of organizations active in the industry. It will examine the implementation and benchmarking of in-house DE&I policies, as well as those around recruitment, retention, and career advancement.

As a thank you for your time, all participants will receive a complimentary copy of the final report, as well as a six-month full subscription* to Real Estate Capital USA.

The survey takes no longer than five minutes to complete, and all responses will remain confidential.

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CREFC and Real Estate Groups Urge Congress to Address Housing Shortage

May 25, 2023

CREFC joined a coalition of 19 housing and real estate groups urging U.S. lawmakers to work with the Biden Administration, housing providers, lenders, and other stakeholders to pursue bipartisan solutions to address the nation’s shortage of affordable housing.

Why it matters: There are not enough homes to meet long-term demand for housing tailored to low- and middle-income households. The shortage is immense, widespread and enduring.

CREFC has been working with its members and industry partners to delivery policy and market solutions to address the housing crisis. The total share of cost-burdened households (those paying more than 30% of their income on housing), increased from 28%  in 1985 to 37% in 2021. The shortage of affordable housing has become more acute amid a period of high inflation.

The letter to Congress and President Biden highlights that a combination of factors has propelled development costs higher, including increased borrowing costs tied to the Fed’s rate tightening moves and costly regulations.

CREFC and the coalition’s strategy supports the following principles:

• Strong private and public partnerships;
• Increased housing supply at all price points and short-term solutions to renter populations in need of immediate support;
• Increased subsidies and emergency housing support for those of modest means; and
• Incentive-based programs, streamlined regulations, and innovative solutions that increase affordable housing supply.

Proposals to Alleviate Shortage of Affordable Housing. The coalition lauded the administration’s Housing Supply Action Plan and urged Congress to work with the White House to enact key policies included in the plan:

• Low-Income Housing Tax Credit (LIHTC): The President’s FY24 Federal Budget includes a proposal to expand and enhance the LIHTC program, which has developed or preserved 3.74 million apartments between 1986 and 2021.
• Neighborhood Homes Credit: The White House FY24 Budget includes a new allocated tax credit to support new construction or rehabilitation of homes for sale and existing homes by current owners who will remain in their neighborhoods. The credit could create 500,000 more affordable homes for moderate- and middle-income families.
• Reducing Regulatory Burdens: The coalition supports proposals to grant funding that incentivizes state and local governments to expand housing supply by reducing barriers to development.
• Housing Preservation: The White House budget includes an expansion of the Housing Choice Voucher programs and the HOME Investment Partnerships Program, which supports building, buying, and rehabilitating affordable housing.

Opposing Tax Increases: While the coalition praised aspects of the President’s budget, new taxes would reduce real estate investment, leading the coalition to urge Congress to reject proposals that:

• Increase the top marginal income and capital gains tax rates,
• Tax carried interest as ordinary income,
• Expand the net investment income tax to encompass active business income,
• Require 100% recapture of depreciation deductions as ordinary income for real estate, and
• Limit the deferral of a taxable gains from 1031 like-kind exchanges.

Burden on Housing Providers. The coalition remains concerned the White House’s “Blueprint for a Renters Bill of Rights” could create duplicative and confusing regulations that interfere with state and local laws meant to govern housing provider and resident relationships. The added complexity of this blueprint could discourage private market investment in new housing construction.

Legislation. In line with the above principles, CREFC and the coalition support the following bills in Congress to address the shortage of affordable housing:

• Yes In My Back Yard Act
• Promote Affordable Housing Near Transit Act
• Build More Housing Near Transit Act
• The Choice in Affordable Housing Act
• Housing Supply and Affordability Act

What’s next: CREFC continues to work with policymakers and industry partners on addressing housing affordability. CREFC members who wish to weigh in on this issue and/or work alongside us on this issue, should contact:

• Sairah Burki (sburki@crefc.org) with questions about regulation related to housing.

David McCarthy (dmccarthy@crefc.org) with questions about the legislative proposals.

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