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CRE Finance World, Autumn 2013

Economic Recovery Faces Q4 Political Headwinds; Robust Policy Agenda Ahead Risk Retention Rule Reborn, TRIA Gets Hill Attention, Lease Accounting Again in Spotlight Martin Schuh he work of funding the government for the next fiscal year – commenced October 1st – which includes the debt limit ceiling and spending authorization, will be the focal points for Congress in the coming months. Included among their fiscal duties will be the approval of a new Federal Reserve Committee chair to replace Chairman Bernanke, whose term expires in January 2014. We’ll examine below some of the challenges facing the macro environment as Washington continues its acrimony and gridlock. The conservative wing of the House GOP caucus is flexing its muscle on any measures related to spending, giving Speaker John Boehner headaches as he tries to move spending legislation through the House. It’s been proven many times in the past session that not even routine votes can be taken for granted, even when endorsed by leadership. A prime target and recurring theme of conservatives is defunding ObamaCare and that permeates all spending related discussions. Senate Democrats and the White House are looking to thwart any attempts by Republicans to implement their spending agenda via the mandatory legislation to raise the debt ceiling or continue to fund the government. Regardless of whether Democrats or Republicans are “right” on fiscal policy, one thing isn’t debatable: there remains a host of unfinished fiscal business for the remainder of 2013. Aside from foreign policy, two must-pass items will dominate the Congressional agenda this month and next. By the time you read this, the House will likely have already passed the first hurdle in the budget showdown (or have caused a shutdown) by passing a Continuing Resolution (a “CR”) that will keep the government functioning until a full-year funding bill can be passed. Speaking of hurdles, the second must-pass item is the perennial battle over the borrowing authority of the U.S. Treasury. Secretary Jack Lew says the U.S. will run out of credit sometime in October. Regardless of the actual credit exhaustion date, Congress must pass another debt limit extension to accommodate the yearly operating deficit and leave enough room for continued access to credit markets. How much headroom they will leave is the big question. On this matter, Obama made his case directly to the American public recently, reiterating his stance that he will not negotiate over a debt limit bill. This means that the so-called CRE Finance World Autumn 2013 6 “Boehner Rule” (i.e. for each dollar of additional borrowing authority, a dollar of savings must pass) will likely be off the table. If this whole scenario sounds familiar, it should. This has become a seasonal occurrence now in D.C., and one that unfortunately distracts Congress from its oversight responsibility of demanding accountability of the Agencies under their purse strings. Now that appropriations have been largely on autopilot (via the stop-gap CRs passed), the regulators are no longer subject to effective oversight from their respective appropriations Cardinal who could easily make life difficult for them by cutting off necessary funding. We spend time on this subject because it does have a direct and indirect impact on our issues. The less time Congress has to conduct oversight and the less leverage they have over the Administration and regulators, the harder it is for us to lobby them to affect change. The two Houses are still miles away from the finish line on FY 2014 — the House has passed only four of the 12 appropriations bills and the Senate has yet to pass any bills. We expect some sort of compromise among the appropriations committees and a large, unruly omnibus is almost compulsory at this point. Until we have a “Grand Bargain” to reset this pattern of stop-gap funding — along with continued Congressional marginalization on oversight — this is the new normal. While the initial, temporary Continuing Resolution may be inevitable, the ultimate spending levels are less certain. The likely outcome is to freeze spending at post-sequestration fiscal 2013 levels to satisfy the budget hawks committed to continued austerity. Yet this will leave a significant drag on the economy as federal spending remains well below the levels at which the economy had grown accustomed. Risk Retention Response Underway In late August, the White House released a re-proposed risk retention rule that includes significant revisions to their 2011 proposal on risk retention. As many readers already know, the re-proposal was largely in line with our expectations. Specifically the elements of 5% retention of “fair value” (versus par value), B-piece transferability restrictions for the first 5 years, revamped qualified mortgage rules and modifications to the operating advisor sections were largely expected. T Vice President, Legislative and Regulatory Policy CRE Finacne Council


CRE Finance World, Autumn 2013
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