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News

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

News

CREFC's October 2021 Monthly CMBS Loan Performance Report

November 19, 2021

CRE Finance Council has released a report on CMBS loan performance for the month of October.*

Key takeaways:

CMBS DELINQUENCY RATE DROPS BELOW 5%

 

  • The overall 30+ day CMBS delinquency rate fell by 64 basis points (bps) in October to 4.6%, the largest monthly drop since February 2021 (79 bps) and the 16th consecutive monthly decline
    • The delinquency rate is 570 bps lower from its peak of 10.3% in June 2020, but still elevated relative to its pre-pandemic level of 2.2% at the end of 2019
    • The pandemic-related CMBS delinquency peak was similar to that reached during the Global Financial Crisis (GFC) at 9.8%. Yet, unlike the GFC, pandemic-related delinquencies were quick to reverse course, falling 40% within 10 months.
  • REO asset volume has been significantly more muted during the pandemic than the GFC. The REO rate since the onset of the pandemic has remained consistent at ~1%, while the rate following the GFC eventually surpassed 3%.
    • The sharp declines in delinquent and special serviced loans suggest that pandemic related REO volumes will continue the trend and be substantially lower than in the GFC
STRONG SASB PERFORMANCE CONTINUES

  • The overall performance for both conduit and SASB CMBS is sound with delinquency rates at 1.6% for SASB and 6.1% for conduit
  • The same applies for ‘in-foreclosure’ loans and REO assets at a combined 0.7% for SASB CMBS and 2.8% for conduit CMBS
  • Total specially serviced loan rates are also low at 5.3% for SASB and 8.2% for conduit
  • The outperformance of SASB CMBS is due primarily to the institutional-quality assets and sponsorship associated with larger loans and the heightened capital liquidity of the borrowers

SPECIAL SERVICING RATE CONTINUES STEADY DECLINE

  • Continued Decline in Special Servicing Volume: Loans in special servicing fell 32 bps to 7.2% in October, the 13th consecutive monthly decline
    • All five major property types saw decreases, with hotel and office leading the way with decreases of 67 bps and 34 bps, respectively
    • The special servicing rate is down from a high water mark of 10.5% in September 2020
    • There are currently $39.2 billion of loans in special servicing (vs. ~$14 billion at year-end 2019)
  • In-Foreclosure and REO Loans Remain De-Minimis: Given the high percentage of loans in special servicing one year into the pandemic, one would anticipate in-foreclosure and REO rates being much higher; instead, they remain low at 1.3% and 0.9%, respectively
    • Low rates reflect forbearances granted by special servicers – forborne loans are captured under servicer watchlist data and special servicer comments
    • According to BofA Global Research, as of October 2021, 520 loans across 292 conduit deals had delinquency statuses of foreclosure or REO, while an additional 115 loans across 96 deals mentioned foreclosure/dual tracking in the servicer commentary. About 40% of these loans are backed by retail properties and ~34% are backed by hotel properties. 2014 and 2015 vintage loans were the most impacted.
    • Servicers do not expect rates to spike if/when foreclosure moratoriums are lifted as servicers continue to report loans as ‘in-foreclosure’ if that is a strategy they plan to pursue once moratoriums are lifted

*Source: Trepp. CMBS data in this report reflect a total outstanding balance of $597.3 billion: 65.0% ($388.1B) conduit, 35.0% ($209.3B) single-asset/single-borrower (SASB).

Click here to download the full report. Contact Raj Aidasani for more information on CMBS loan performance.

Contact

Raj Aidasani
Senior Director, Research
646.884.7566
raidasani@crefc.org
The overall 30+ day CMBS delinquency rate fell by 64 basis points (bps) in October to 4.6%, the largest monthly drop since February 2021 (79 bps) and the 16th consecutive monthly decline
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's October 2021 Monthly CMBS Loan Performance Report
November 19, 2021
CRE Finance Council has released a report on CMBS loan performance for the month of October.*

News

CREFC’s Sustainability Initiative

November 15, 2021

In February 2021, CREFC launched its Sustainability Initiative (SI), immediately attracting over 120 members. This Initiative has benefited from terrific industry engagement over the past year, including invaluable guidance from its Steering Committee. Moving forward, the CREFC Policy and Capital Markets Briefing will include updates from the SI. In this issue, we provide a brief overview of the SI’s Mission Statement, the work of its three subcommittees, and the resource portal. If you could like to join the SI, please contact Sburki@crefc.org.

  • Mission Statement: Align the objectives of the CREF industry with the challenges and opportunities of environmental, social, and corporate sustainability. Provide robust educational resources; promote transparency by encouraging relevant standards and best practices; and foster creative financing solutions that enhance both the public good and the liquidity of the CREF market.

  • Subcommittee Activity:

    • The Education Subcommittee has hosted nearly 20 presentations and webinars on climate science, engineering reports on climate resiliency, and financial topics such as existing disclosure frameworks and green renovation financing.
    • The Transparency Subcommittee is identifying, for eventual inclusion into the Investor Reporting Package™ (IRP™), climate data that are both attainable and relevant for market participants. The subcommittee has coalesced around a few key categories of disclosure and, as incorporation into the IRP™ goes through technical review processes, will produce a Best Practices document early next year.
    • The Advocacy Subcommittee is monitoring relevant legislative and regulatory developments, including responding to the Securities and Exchange Commission’s (SEC’s) RFI on climate disclosures. The subcommittee’s recommendations have also been shared via meetings with SEC commissioners.
The CREFC Sustainability Resource Site includes a substantial amount of information related to the SI and related topics:

  • Document Library
  • Subcommittee/membership information
  • Presentations
  • News
  • Upcoming Events
  • “Spotlight” articles
  •  

Contact

Sairah Burki
Managing Director, Regulatory Affairs
703.201.4294
sburki@crefc.org
The CREFC Sustainability Resource Site includes a substantial amount of information related to the SI and related topics.
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’s Sustainability Initiative
November 15, 2021
In February 2021, CREFC launched its Sustainability Initiative (SI), immediately attracting over 120 members. This Initiative has benefited from terrific industry engagement over the past year, including invaluable guidance from its Steering Committe

News

OCC’s Acting Comptroller Urges Bank Boards to Start Asking about Climate Risk

November 15, 2021



On November 8, Office of the Comptroller of the Currency’s (OCC) Acting Chair Michael Hsu urged bank boards to start examining how banks are managing and reporting climate risks. In particular, Hsu encourages boards to ask the following five questions:

  1. What is our overall exposure to climate change?
  2. Which counterparties, sectors, or locales warrant our heightened attention and focus?
  3. How exposed are we to a carbon tax?
  4. How vulnerable are data centers and other critical services to extreme weather?
  5. What can we do to position ourselves to seize opportunities from climate change?

As reported in last week’s Policy and Capital Markets Briefing, Hsu also shared that the OCC will develop high-level climate risk management supervisory expectations for large banks and issue framework guidance for comment by the end of the year. In the November 8 document, he added that next year the OCC will issue detailed guidance for each risk area. “The detailed guidance will build on a range-of-practices review that will launch this week, industry and climate groups’ input, and lessons from other jurisdictions.”

 

Contact

JUSTIN AILES
Managing Director, Government Relations
202.448.0853
jailes@crefc.org
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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.
OCC’s Acting Comptroller Urges Bank Boards to Start Asking about Climate Risk
November 15, 2021
On November 8, Office of the Comptroller of the Currency’s (OCC) Acting Chair Michael Hsu urged bank boards to start examining how banks are managing and reporting climate risks. In particular, Hsu encourages boards to ask the following five question

News

Build Back Better (BBB) Awaits CBO’s Cost Estimate; Hurdles Ahead

November 15, 2021

President Biden hosts a bipartisan bill signing ceremony for his Infrastructure Investment and Jobs Act today, along with a virtual summit with Chinese Premier Xi Jinping. While the administration and Congressional Democrats (as well as a few Republicans) celebrate the newly passed infrastructure bill, the Build Back Better (BBB) plan will continue to be the subject of intense negotiation on numerous fronts.

We continue to expect BBB – Biden’s signature family, children, and climate legislation – to ultimately be signed into law in some form and price tag, but the bill and the politics around it will likely continue to change. The macro spending goals, focused on social issues like child tax credits, climate, housing, and healthcare remain. A large spending item will also be the repeal of the state and local tax (SALT) deduction, which is a key provision for moderate Democrats. And while the taxes still focus on the wealthiest Americans making at least $400,000, provisions such as capital gains parity and higher marginal rates for corporations and individuals have dropped from the plan – for now. Much of the revenue is more narrowly focused on the extremely wealthy, tightening corporate tax rules, and enhancing enforcement. For more information on the evolution of the provisions, see our charts in the next story.

As of Sunday, November 14, based on the White House’s BBB Framework:

  • Spending: $1.75 trillion
 
  • Child Care, Home Care, Preschool, Child Tax Credits
  • Clean Energy and Climate
  • Healthcare Credits
  • Medicare Hearing
  • Housing
  • Higher Ed and Workforce
  • Equity & Other investments
 
  • Offsets: $1.995 trillion
 
  • 15% Corporate Minimum Tax on Large Corporations
  • Stock Buybacks Tax
  • Corporate International Reform to Stop Rewarding Companies
    That Ship Jobs and Profits Overseas
  • Adjusted Gross Income (AGI) Surcharge on the Top 0.02% of Americans
  • Close Medicare Tax Loophole for Wealthy
  • Limit Business Losses for the Wealthy
  • IRS Investments to Close the Tax Gap
  • Prescription Drugs: Repeal Rebate Rule
     

Pathways to Passage

While the process has been chaotic for both the infrastructure legislation and BBB, the manner in which each bill moves through Congress will be quite different.

  • Bipartisan infrastructure bill was passed with bipartisan support:
    • Moved first in the Senate following a bipartisan breakthrough;
    • The House passed with no changes after a long-delayed and very narrow vote (where fewer than 20 lawmakers crossed the aisle).
  • BBB’s (H.R. 5376) progress through the budget reconciliation process in Congress will happen quite differently:
    • It will likely go through the House first (if and when it passes) by an incredibly-narrow, partisan vote (where Democrats have just a four-vote margin);
    • Then move to the Senate (if and when it passes) with changes and likely happen fairly quickly by an even narrower margin, and may require a tie-breaking vote by the Vice President.
Time is not on this bill’s side as the longer it takes to make its way, the likely the greater its opposition. In the last week, the Tax Policy Center of the Urban Institute and Brookings Institution found that Build Back Better “2.0” raises taxes for some ultra high-income households, but actually reduces taxes for other high income  households earning less, which Politico also reported. And the bipartisan Committee for a Responsible Federal Budget estimated a $200 billion gap in revenue over spending provisions.

Still Waiting on a CBO Score

The nonpartisan Congressional Budget Office (CBO) is “in the process of preparing a cost estimate for the current (House-drafted, but not passed) version” of BBB. CBO said in a blog post that,

“When we determine a release date for the cost estimate for the entire bill, we will provide advance notice.”

Democratic leaders have warned that calculating the total cost of the legislation could take weeks, which could severely delay plans to pass the legislation perhaps even before the end of the year, as five House moderates who indicated they “must first have the proper…scoring information before any floor consideration” in the House. The lawmakers’ letter noted that the, “Senate cannot even consider the BBB Act under reconciliation rules until it has received an official CBO score.” Democrats are counting on the CBO cost estimate to closely match the estimate provided by the White House, to avoid more cuts to the roughly $1.75 trillion legislation, and CBO has begun to release what few estimates it has. If the CBO and White House estimates don’t add up, lawmakers will need to make further cuts to the BBB legislation or find new tax increases to offset the new spending.

A key provision to watch is whether the CBO will share the White House’s estimate that $400 billion will be raised by increasing $80 billion in funding to the IRS. Last week, the IRS Commissioner, appointed by President Trump, wrote in a Washington Post op-ed, “I strongly urge Congress to enact the administration’s proposal to provide us with $80 billion in vital funding over the next decade.”

Separately, on climate change, Michael Bloomberg pressed Congressional moderates to pass BBB in an op-ed last week by highlighting, “One important piece of the bill’s climate-related funding is to improve energy efficiency in buildings, which will help cities and states retrofit and upgrade old structures and adopt clean-energy codes for new ones.” Bloomberg’s op-ed also warned, “This month’s elections offer an early warning of what happens when the party in charge has few accomplishments to run on. Democrats won’t get this chance again, and neither will the nation.”

Two New Objections by Manchin

Beyond the CBO score, last week’s inflation report could push Sen. Joe Manchin (D-WV) to dig in his heels further to resist more government spending “potentially killing a quick deal on the $1.75 trillion package,” Axios reported. Another source not typically tracked, The Automotive News, reported that Manchin said at an event last week for a Toyota supplier in West Virginia that pro-union EV tax credits in the current draft of an additional $4,500 if a vehicle’s final assembly takes place at a US facility on top of a $7,500 credit for purchase of a plug-in electric vehicle are "wrong" and "not American.”

Senate Schedule

According to a letter from Senate Majority Leader Chuck Schumer (D-NY) on Sunday, a vote on BBB in the Senate will likely take weeks. In the interim, Senate floor activity will focus on a bill and another short-term continuing resolution is all but certain to avoid a government shutdown on December 3. Schumer’s letter also acknowledges the Senate will need to act on the debt ceiling and outlines a series of meetings with the Senate Parliamentarian that are required in order to bring BBB to the Senate floor.

 

Contact

JUSTIN AILES
Managing Director, Government Relations
202.448.0853
jailes@crefc.org
While the process has been chaotic for both the infrastructure legislation and BBB, the manner in which each bill moves through Congress will be quite different.
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.
Build Back Better (BBB) Awaits CBO’s Cost Estimate; Hurdles Ahead
November 15, 2021
President Biden hosts a bipartisan bill signing ceremony for his Infrastructure Investment and Jobs Act today, along with a virtual summit with Chinese Premier Xi Jinping. While the administration and Congressional Democrats (as well as a few Republi

News


CREFC Capital Markets Update: Week of November 15th

November 15, 2021

Economic Indicators

  • CPI: Biggest Gain since 1990. US consumer prices rose at the fastest annual pace since 1990. The consumer price index (CPI) increased 6.2% from October 2020 and 0.9% from September, the largest gain in four months. Both levels exceeded all estimates in a Bloomberg survey of economists. Excluding the volatile food and energy components, core inflation increased 4.2% from October 2020 and 0.6% from September, coming in slightly below significantly elevated estimates.


 

    • The October CPI report indicated continuing broadening of inflationary levels. Energy prices surged 4.8% (versus 1.3% in September), contributing to a third of the monthly increase. Core goods prices rose 1.0% (versus 0.2% in September), led by new and used cars. The price increases in services categories were also broad based, suggesting labor shortages and rapid wage growth may be seeping into consumer prices.
    • Rents of primary residences, a key category which comprises nearly one-third of the CPI index and tends to influence inflation’s future path, increased by 0.4%. This follows a 0.5% increase in September, the fastest increase since May 2001 (also 0.5%). So-called owners’ equivalent rent, which estimates what homeowners would pay each month to rent their own home, rose 0.4%, matching the prior month and the largest advance since June 2006.


I got you crazy

Slower New Issuance in Holiday-Shortened Week

  • Private-Label CMBS. Year-to-date private label CMBS and CRE CLO issuance reached $134.9 billion, 143% ahead of the $55.5 billion at the same point in 2020.
    • In a shortened week as a result of the Veterans Day holiday, one conduit, one CRE CLO, and two SASB transactions priced totaling $3.6 billion. Activity this week is expected to be brisk with five offerings currently in the market including one conduit, one CRE CLO, and three SASB transactions. According to Bank of America, another $15.5 billion of transactions are in the visible new-issue pipeline expected to price by the end of the year.
    • Spreads on 10-year super-senior AAA conduit CMBS ended the week at 67 bps over swaps, unchanged from the prior week and still lower than their pre-COVID levels of ~75-80 bps. BBB- spreads ended the week at 360 bps, also unchanged from the previous week. BBB- spreads reached a pandemic high of ~1,300 bps in April 2020.

  • Agency CMBS. Issuance in the agency market hit a year-to-date total of $158.7 billion, higher by $12.3 billion than the same point in 2020. The increase in issuance has been driven by an unprecedented increase in Ginnie project loan transactions up 48% year-to-date compared to the same point in 2020, Fannie DUS transactions up 34% to $40.6 billion, and Freddie K transactions up 5% to $54.8 billion.
    • The 2021 surge in Ginnie Mae Project Loan issuance comes on the heels of an earlier surge in supply in 2020, when issuance more than doubled that seen in 2019, as low rates and declining penalty points on outstanding loans led to a spike in refinancing activity. Year-to-date 2021 issuance of $40.3 billion is well ahead of full-year 2020 issuance of $33.7 billion, a record at the time.

Contact

Raj Aidasani
Senior Director, Research
646.884.7566
raidasani@crefc.org
CREFC reviews economic indicators: CPI, Private-Label CMBS, and Agency CMBS for the week of 11/15.
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 Capital Markets Update: Week of November 15
November 15, 2021
CPI: Biggest Gain since 1990. US consumer prices rose at the fastest annual pace since 1990. The consumer price index (CPI) increased 6.2% from October 2020 and 0.9% from September, the largest gain in four months. Both levels exceeded all estimates

News

Fed Releases Financial Stability Report

November 15, 2021

On November 8, 2021, the Federal Reserve released its Financial Stability Report that assesses the reliance of the financial system.

CRE Highlights

The Fed notes that aggregate CRE prices continued to increase above pre-pandemic levels, though retail, hotel, and office valuations remained flat with limited transaction volume. While some strain continues, the Fed noted vacancy rates in most property types are generally in line with pre-pandemic levels, but office vacancies are elevated and hotel occupancy rates remain depressed. CMBS delinquencies continue to decline, yet still elevated compared to pre-pandemic levels. Banks reported strong CRE loan demand in Q2 and that lending standards remain tighter than pre-pandemic.

Macro

The report also highlighted potential fallout from stress in China’s real estate sector could have impacts on global markets and the U.S.

Overall, the headline vulnerabilities were:

  • Asset valuations. Prices of risky assets generally increased since the previous report, and, in some markets, prices are high compared with expected cash flows. House prices have increased rapidly since May, continuing to outstrip increases in rent. Nevertheless, despite rising housing valuations, little evidence exists of deteriorating credit standards or highly leveraged investment activity in the housing market. Asset prices remain vulnerable to significant declines should investor risk sentiment deteriorate, progress on containing the virus disappoint, or the economic recovery stall.

  • Borrowing by businesses and households. Key measures of vulnerability from business debt, including debt-to-GDP, gross leverage, and interest coverage ratios, have largely returned to pre-pandemic levels. Business balance sheets have benefited from continued sound earnings growth, low interest rates, and government support. However, the rise of the Delta variant appears to have slowed improvements in the outlook for small businesses. Key measures of household vulnerability have also largely returned to pre-pandemic levels. Household balance sheets have benefited from, among other factors, extensions in borrower relief programs, federal stimulus, and high aggregate personal savings rates. Nonetheless, the expiration of government support programs and uncertainty over the course of the pandemic may still pose significant risks to households.

  • Leverage in the financial sector. Bank profits have been strong this year, and capital ratios remained well in excess of regulatory requirements. Some challenging conditions remain due to compressed net interest margins and loans in the sectors most affected by the COVID-19 pandemic. Leverage at broker-dealers was low. Leverage continued to be high by historical standards at life insurance companies, and hedge fund leverage remained somewhat above its historical average. Issuance of collateralized loan obligations (CLOs) and asset-backed securities (ABS) has been robust.

  • Funding risk. Domestic banks relied only modestly on short-term wholesale funding and continued to maintain sizable holdings of high-quality liquid assets (HQLAs). By contrast, structural vulnerabilities persist in some types of Money Market Mutual Funds (MMFs) and other cash-management vehicles as well as in bond and bank loan mutual funds. There are also funding-risk vulnerabilities in the growing stablecoin sector.


On the Treasury market, the report noted yields remain low but within historical ranges, though an increase in yields without a stronger economic outlook could lead to downward valuation in many markets. The Fed also provided a positive outlook on the Treasury market volatility and functioning, “measures of Treasury market functioning have been stable since the previous report. In particular, liquidity metrics, such as market depth, have remained stable since recovering from the brief period of stress in February 2021.” This outlook appears to be diverging with the recent liquidity issues in the Treasury market.

 

Contact

JUSTIN AILES
Managing Director, Government Relations
202.448.0853
jailes@crefc.org
On November 8, 2021, the Federal Reserve released its Financial Stability Report that assesses the reliance of the financial system.
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.
Fed Releases Financial Stability Report
November 15, 2021
On November 8, 2021, the Federal Reserve released its Financial Stability Report that assesses the reliance of the financial system.

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