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CREFC LIBOR Playbook

November 21, 2022. 

CREFC has been working diligently with its members to address the implications and operational issues related to transitioning individual floating rate loans from a LIBOR index to the recommended SOFR index.

Why it matters: LIBOR will cease to be published beyond June 30, 2023.  In light of that impending deadline, many market participants will be impacted by LIBOR cessation and the transition to SOFR, including but not limited to master servicers, primary servicers, special servicers, trustees, certificate administrators, rating agencies, investors and borrowers. 

• The CREFC community through the Servicers Forum compiled guidance via a “LIBOR Playbook” tailored to our servicers’ role in the transitioning of floating rate loans from a LIBOR index to a SOFR index.

These general guidelines seek to address a three-step process which provides guidance on:

1. Identifying all LIBOR benchmarked loans in servicing platforms,
2. Remediating any loans with deficient replacement language, and
3. Providing consistent and timely notices to borrowers and transaction parties.

What’s Next: CREFC expects to finalize and distribute the playbook in the coming weeks. A webinar is also planned to introduce the playbook and delve into the nuances of legacy LIBOR loans.

Contact Kathleen Olin (kolin@crefc.org) for more information.

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CREFC has been working diligently with its members to address the implications and operational issues related to transitioning individual floating rate loans from a LIBOR index to the recommended SOFR index.

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CREFC Urges the SEC to Permanently Exempt 144A CMBS from 15c2-11 Disclosure

November 21, 2022. 

Last Friday, CREFC met with SEC staff of Chairman Gary Gensler regarding SEC Rule 15c2-11. CREFC urged the SEC to extend the December 2021 No Action Letter to permanently exempt 144A CMBS from 15c2-11.

Why it matters: Beginning on January 4, 2023, broker-dealers will be required to confirm that the issuer’s information is publicly available before they can freely quote Rule 144A securities. This new interpretation of securities law could impact liquidity for 144A bonds, which a number of CREFC members use for private placement CMBS and CRE CLOs.

Highlights from the meeting are below:

• SEC staff pointed to Gensler’s recent remarks at a Healthy Markets Conference where he said the SEC was working on addressing the 15c2-11 issue in the near term. Gensler’s specific remarks during the Q&A were not publicly available nor widely reported.
• SEC staff did not elaborate on the substance of its action, but expect to release something in the next few weeks regarding the No Action Letter.
• Industry advocates are hopeful that the SEC action will delay or exempt application of 15c2-11 to 144A issuances.

What’s next: CREFC continues to work with policymakers and members to highlight why application of 15c2-11 to 144A private debt markets provides no additional investor benefit and upends the 144A market for CMBS borrowers and investors.

Contact David McCarthy (dmccarthy@crefc.org) for more information.

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Last Friday, CREFC met with SEC staff of Chairman Gary Gensler regarding SEC Rule 15c2-11. CREFC urged the SEC to extend the December 2021 No Action Letter to permanently exempt 144A CMBS from 15c2-11.

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The Road to the 118th Congress: Leadership Elections

November 21, 2022. 

Last week, Republicans and Democrats began selecting their leadership for the upcoming 118th Congress.

Why it matters: In both chambers, those elected to leadership positions in the majority are responsible for setting the legislative agenda for the next two years. They negotiate with the minority party on issues and legislation that require bipartisan support (e.g., government funding and the debt ceiling).

House Republicans voted for their top three positions:

• Rep. Kevin McCarthy (R-CA) secured the Republican nomination for Speaker of the House by a 188-31 vote of the House Republican Conference. McCarthy received 86% of the votes and easily beat a challenge from Rep. Andy Biggs (R-AZ). McCarthy needs to secure 218 votes to be elected Speaker on January 3.
• Rep. Steve Scalise (R-LA) secured the #2 spot and will be the next Majority Leader.
• Rep. Tom Emmer (R-MN) will be the next Majority Whip in the House after a competitive 3-way race between Rep. Jim Banks (R-IN) and Rep. Drew Ferguson (R-GA).

House Democrats:

• After leading Democrats in the House for 20 years, Speaker Nancy Pelosi announced she would step back from leadership to make way for “a new generation to lead the Democratic caucus” and hold a quasi-emeritus type of role.
• Majority Leader Rep. Steny Hoyer (D-MD) announced he will also step back, while Majority Whip Jim Clyburn (D-SC) will hold the number 4 position as Assistant Democratic Leader.

What's next: The “Big Three” House Democrats, Pelosi (82), Steny Hoyer (83), and Clyburn (82), will be replaced by the “New Three” on November 30, when the Democratic caucus holds their leadership vote.

1. Hakeem Jeffries (D-NY) is expected to succeed Pelosi as Democratic Leader. The 52-year-old Brooklynite worked at law firm Paul, Weiss and served in the New York State Assembly before winning his current seat in 2012. He will be the first Black member of Congress to lead either party in the House. A member of the Congressional Progressive Caucus, Jefferies has publicly clashed with the party’s left flank.
2. Katherine Clark (D-MA) is expected to become the next Minority Whip. The 59-year old, first elected in a 2013 special election, previously held lower-profile leadership roles working closely with freshmen members. A member of the Congressional Progressive Caucus, Clark isn’t known as a firebrand but has been quietly positioning herself for leadership by building close ties with powerful women across Washington.
3. Pete Aguilar (D-CA) — is expected to become the Caucus Chair. The 43-year old who flipped a Republican-held seat in 2014 is been viewed as a rising star. He is a member of the New Democrat Coalition, a group of Congressional lawmakers with a reputation as pro-business moderates.

Senate Republicans:

• Sen. Mitch McConnell (R-KY) will remain as Republican Leader by a vote of 37-10 after easily beating back a challenge from National Republican Senatorial Committee Chair, Sen. Rick Scott (R-FL). McConnell acknowledged Republicans “have a problem with people in the middle,” and said, “we turned off a lot of these centrist voters.” He will break the record for longest-serving party leader in Senate history next year.
• Minority Whip John Thune (R-S.D.) and Conference Chair John Barrasso (R-Wyo.) will remain in their #2 and #3 positions, respectively.

Senate Democrats

Majority Leader Sen. Chuck Schumer (D-NY) and Majority Whip Sen. Dick Durbin (D-IL) will remain in their positions. Sen. Patti Murray (D-WA) is expected to be nominated as the next President Pro Tempore, opening up the #3 Caucus Leader position. The Senate Democratic caucus will host their leadership elections on December 8.

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Last week, Republicans and Democrats began selecting their leadership for the upcoming 118th Congress.

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Marriage Equality to Pass; Debt Limit Doubts

November 21, 2022. 

When lawmakers return from Thanksgiving break, the Senate is poised to pass marriage equality legislation to protect same-sex marriage under Federal law.

Why it matters: The Respect for Marriage Act received support of 12 Senate Republicans in a key procedural vote last week after a bipartisan group of Senate sponsors made changes to the bill that included language to address religious liberty concerns by Republicans.

• The bill sponsors are: Susan Collins (R-ME), Tammy Baldwin (D-WI), Kyrsten Sinema (D-AZ), Rob Portman (R-OH) and Thom Tillis (R-NC). Nine additional Senate Republicans supported the procedural vote, along with all 50 Senate Democrats.

What's next: Senate Majority Leader Chuck Schumer delayed consideration of the legislation until after the election at the behest of senators who said it would garner more support that way. After it passes the Senate in December, the bill will have to go back to the House where there is significant bipartisan support, before it heads to President Joe Biden for his signature.

Also last week:

• The House and Senate started the lame-duck session. The most important unfinished business is government funding, and appropriators face a December 16 deadline. The defense authorization bill, $37.7 billion more in Ukraine aid, Electoral College reform and confirming more judges will be debated through the end of the year.
• A possible early vote to raise debt-limit is looking less likely. Chuck Schumer will attempt to lift the debt ceiling in a bipartisan manner during the Lame Duck, but House Republicans are loathe to authorize more government borrowing. Politico has more.

Last week, Congress spent most of its time on leadership elections by Republicans who are battling (both on and off Capitol Hill) over the future of their party. Read our story below for more information.

Contact Justin Ailes (jailes@crefc.org) for more information.

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Congress has just three short weeks to complete its work during the Lame Duck.

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Financial Regulators Testify on the Hill

November 21, 2022. 

The Senate Banking and House Financial Services Committees heard from the top financial regulators last week:

• Michael Barr, Vice Chairman of Supervision, Federal Reserve
• Martin Gruenberg, Acting Chairman, Federal Deposit Insurance Corporation (FDIC)
• Todd Harper, Chairman, National Credit Union Administration (NCUA)
• Michael Hsu, Acting Comptroller of the Currency, Office of the Comptroller of the Currency (OCC)

Why it matters: In addition to addressing cryptocurrency, digital assets, and the recent FTX debacle, policymakers engaged the regulators on bank capital requirements. Republicans in the House and Senate stated that the banks are in a strong capital position and that any additional burdens would be unwelcome during current economic difficulties.

What they’re saying: Fed Vice-Chair Barr asserted that despite high bank capital levels, loan losses are rising and regulators are closely watching the CRE and residential housing sectors. He also shared that “strong” does not necessarily mean “strong enough.”

What’s next: the Fed will release a holistic capital framework review early next year, to include review of the supplementary leverage ratio, countercyclical capital buffer, stress testing, and G-SIB surcharges. He emphasized that any significant potential changes would be subject to notice and comment.

One fun thing: Regulators emphasized that they would focus only on financial institutions’ ability to measure and manage climate risk, and would not dictate capital allocation policies.

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Bank regulators told Congress they would focus only on financial institutions’ ability to measure and manage climate risk.

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Coalition Urges FHFA to Implement Rent Control

November 21, 2022. 

A coalition of renter advocates is urging the White House to use administrative action to implement rent control on multifamily properties.

Why it matters: A divided Congress is not going to pass nationwide rent control. But advocates are looking to the executive branch to unilaterally impose price controls on the cost of housing. The Federal Housing Finance Agency (FHFA) oversees Fannie and Freddie and is a regulator advocates identified as a main target for taking action on rising housing costs.

What they’re saying: The Homes Guarantee Coalition, comprising over 200 tenant unions, community organizations, and legal advocates, drafted a Rent Regulation Executive Order that would aim to cap rent growth using regulatory authority. Among other mandates, they propose FHFA:

• Limit rent increases on GSE-backed multifamily mortgages to 1.5 times CPI or 3%, whichever is lower, on an annual basis.
• Create a public database of owners of residential rental properties.
• Mandate “good cause eviction” regulations on GSE multifamily loans.

The draft order would task the Federal Trade Commission (FTC) with investigating rental prices across the nation, along with fees or fines related to residential leases. The order also has roles for HUD, Treasury, and the CFPB.

The bottom line: While the White House met with the coalition on November 14, the draft order is unlikely to be signed by the President. Many provisions are of questionable legality and would be subject to litigation. Moreover, the issue in the current inflationary environment in which utility and employee/maintenance costs have risen sharply makes such caps challenging and could limit new supply of multifamily housing.

Our thought bubble: The order provides good insight into the vast powers of the federal administrative state. Although some of the most extreme actions may not advance, the draft could be a blueprint for progressive regulators to take action on rent costs. 

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A coalition of renter advocates is urging the White House to use administrative action to implement rent control on multifamily properties.

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CREFC Leaders Meet Congress

November 21, 2022. 

CREFC leaders were in Washington for two days of meetings with key lawmakers. Meetings focused on members of the Senate Banking Committee and House Financial Services Committee. Our members relayed what they are seeing in the macro economy, particularly focusing on inflation and rising rates, and their impact on CRE debt markets, along with other key policy issues.

Why it matters: The number one issue members discussed was the need to extend SEC’s December 2021 No Action Letter to permanently exempt 144A CMBS from SEC Rule 15c2-11. Beginning on January 4, 2023, broker-dealers will be required to confirm that the issuer’s information is publicly available before they can freely quote Rule 144A securities. This new interpretation of securities law could impact liquidity for 144A bonds, which a number of CREFC members use for private placement SASB CMBS and CRE CLOs.

CREFC also discussed:

The LIBOR to SOFR transition, which is close to the finish line. We are waiting on a response from the Fed on the final implementation rule and our servicers are prepared for the transition.

What we are seeing on SEC climate disclosures and CRE resiliency, which have been a long-standing component of CRE financing and are critical to credit risk assessments.

We support the SAFE Banking Act. Borrowers and their tenants engaged in state-legal cannabis businesses should be able to secure well-regulated loans, banking, and insurance services.

Housing affordability, where we are eager to do our part to provide policymakers with our experience on what works. Members also discussed the Community Reinvestment Act (CRA), Low Income Housing Tax Credits (LIHTC) and zoning/permitting issues for property conversions.

Treasury’s Beneficial Ownership regulations, where CREFC members will be most impacted by upcoming FinCEN rules:

1. How financial institutions use a beneficial ownership database; and
2. Updating existing beneficial ownership regulations.

To learn more about CREFC’s public policy priorities, please visit our website. If you have questions, please contact Justin Ailes at jailes@crefc.org, Sairah Burki at sburki@crefc.org or David McCarthy at dmccarthy@crefc.org. 

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The atrium of the Hart Senate Office Building in Washington, DC.

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Biden Nominates Gruenberg as FDIC Chair

November 21, 2022. 

On November 14, President Biden nominated Martin Gruenberg for permanent chairman of the Federal Deposit Insurance Corporation (FDIC).

Why it matters: Gruenberg has been serving as the FDIC's Acting Chair since the resignation of the former Chair Jelena McWilliams, a Trump appointee. He also led the agency from 2012 until McWilliams became Chair in 2018.

• Biden appointees, Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra and acting Comptroller of the Currency (OCC) Michael Hsu hold two of the five-person Board positions.

What’s next: In September, President Biden nominated two Republican candidates, Travis Hill, a former senior adviser to McWilliams, and Federal Housing Finance Agency senior counsel Jonathan McKernan, to serve as FDIC vice chairman and director, respectively. Confirmation hearings for Gruenberg, Hill, and McKernan likely will take place at the same time.

Yes, but: Rep. Patrick McHenry, R-N.C., who will become Chair of the House Financial Services Committee in January but has no role in the confirmation, strongly opposes Gruenberg’s nomination. According to Law360, McHenry stated,

"Not only has acting Chair Gruenberg been a rabid partisan at the FDIC for more than a decade, but he also was a key player in Democrats' scheme to wrest control of the board from then-Chair Jelena McWilliams."

Go deeper: Gruenberg’s priorities include the Community Reinvestment Act (CRA), climate risk, bank mergers, crypto risk evaluation, and bank capital requirements. (See here for CREFC’s response to the recent CRA proposal.)

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On November 14, President Biden nominated Martin Gruenberg for permanent chairman of the Federal Deposit Insurance Corporation (FDIC).

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COP 27 Wraps Up

November 21, 2022. 

On November 20, global policymakers wrapped up the two-week COP27, or “Conference of the Parties,” held in Sharm El Sheik, Egypt. COP meetings convene, on an annual basis, the signatories to the 1992 UN Framework Convention on Climate Change.

Why it matters: Diplomats finally agreed to a loss and damage fund, which would compensate developing countries suffering from climate change caused by the developed world. Poorer nations have been advocating for climate-related compensation for 30 years.

Yes, but: While American representatives agreed to this fund, money must be appropriated by Congress. With Republicans taking control of the House in January, it is not clear how much money Congress will allocate to the loss and damage fund.

What’s next: The final COP27 deal, however, fell short in terms addressing greenhouse gas emissions. As the New York Times reported, the deal did not make significant strides beyond what was agreed at COP26 last year.

Additionally, while many nations continued to push for a phase out of all polluting fossil fuels, the agreement maintained the COP26 language calling only for a “phase down of unabated coal.”

What they’re saying: As reported by the Washington Post, European Union climate chief Frans Timmermans shared his disappointment, stating that “the world will not thank us…what we have in front of us is not enough of a step forward for people and planet.”

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On November 20, global policymakers wrapped up the two-week COP27, or “Conference of the Parties,” held in Sharm El Sheik, Egypt. COP meetings convene, on an annual basis, the signatories to the 1992 UN Framework Convention on Climate Change.

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