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March 14, 2014

CAPITAL & CREDIT / TERRORISM INSURANCE
Boehner Lists TRIA Extension as Key House Priority in Coming Months; Universities Weigh in on Terrorism Insurance Debate

GSE REFORM
Senate Banking Leaders Unveil Bipartisan GSE Reform Framework Based on “Corker-Warner” Proposal

TAX POLICY
House Lawmakers Discuss Internet Sales Tax Collection; Budget-Writers Ponder How to Address Camp’s Tax Reform Plan; 2nd Installment of GlobeSt. Interview with DeBoer

LAND USE AND IMMIGRATION POLICY
Senate House Bills Will Restore Confidence in Condo Construction, Attract Foreign Investment Capital to Support U.S. Development Projects Issues


CAPITAL & CREDIT / TERRORISM INSURANCE

Boehner Lists TRIA Extension as Key House Priority in Coming Months; Universities Weigh in on Terrorism Insurance Debate

In an encouraging sign for commercial real estate and other stakeholders in the terrorism insurance debate, House Speaker John Boehner (R-OH) yesterday cited reauthorization of the expiring Terrorism Risk Insurance Act (TRIA) as a key House priority in upcoming months.

Boehner point

House Speaker John Boehner (R-OH) yesterday cited reauthorization of the expiring Terrorism Risk Insurance Act (TRIA) as a key House priority in upcoming months.

Speaking to reporters at his weekly press conference, Boehner said, “We’ve got quite a few things yet to do. We’ve got a highway bill that we’ve got to reauthorize sometime this year. You got the terrorism risk insurance program that has to be reauthorized. You’ve got reauthorization of the Export-Import Bank.”

Boehner said the list was not exhaustive, noting that immigration reform “ought to be dealt with,” along with “replacing ‘Obamacare’” and “doing a budget. So we’ve got a lot of work on our list” (Bloomberg/BNA, March 13). 

In conjunction with a new TRIA study released by the RAND Corp. last week, The Real Estate Roundtable issued a statement that congressional action to extend TRIA should not wait until the end of the year.

“[TRIA] works. It has virtually no ongoing cost to taxpayers and the delay in acting is already slowing transactions and impending economic growth. We encourage policy makers on Capitol Hill to . . . move legislation to renew TRIA as soon as possible,” The Roundtable stated March 6.

In related news this week, the University of Texas (UT) System — encompassing nine universities, six health facilities, sports and entertainment venues and power plants totalling 95 million square feet of building space — wrote to House Financial Services Committee Chairman Jeb Hensarling (R-TX) about the importance of extending TRIA before its scheduled expiration at year-end.   

“Because of the public nature of [its] assets, the UT system purchases coverage available under TRIA in both the commercial property and the Builders Risk insurance marketplace. . . Should Congress allow TRIA to expire, it is highly likely that many insurers would retract from the marketplace, coverage offered would be more restrictive, and premium costs for this coverage would increase significantly,” UT stated in its March 11 letter to Hensarling.

2014 March UT TRIA letter

The University of Texas (UT) System — encompassing nine universities, six health facilities, sports and entertainment venues and power plants totalling 95 million square feet of building space — wrote to House Financial Services Committee Chairman Jeb Hensarling (R-TX) about the importance of extending TRIA before its scheduled expiration at year-end

“If reasonably priced coverage is no longer available, UT System would be less inclined to purchase market-priced coverage, resulting in increased financial exposure to its institutions and the State of Texas,” the letter continued.

Texas A&M University, which includes facilities that conduct classified research for U.S. government agencies, wrote a similar appeal to Hensarling in November

The university’s Nov. 13 letter explained that TRIA is essential to minimizing the state’s financial exposure, and stated that “commercial coverage for terrorist activities has not developed to replace the current program made available through TRIA.” The letter was signed by Texas A&M President R. Bowen Loftin, who sits on the Department of Homeland Security’s (DHS) Academic Advisory Committee and who chairs its Subcommittee on Campus Resilience.   

In a sign of ongoing challenges, House Financial Services Housing and Insurance Subcommittee Chairman Randy Neugebauer (R-TX) on Wednesday outlined a range of TRIA policy options including:

Allowing the program to expire on Dec. 31, 

Extending the current program; 

Phasing out the program by providing insurers time to establish business models to handle terrorism risks; 

Creating a bifurcation of terrorism coverage by placing traditional terrorism with private insurers, while maintaining the federal backstop for significant nuclear, chemical, biological, or radioactive terrorist attacks.

Neugebauer made his remarks at the Indiana State University’s 10th annual Network Financial Institute insurance public policy summit in Washington. American Bankers Association. 

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GSE REFORM

Senate Banking Leaders Unveil Bipartisan GSE Reform Framework Based on “Corker-Warner” Proposal  

Nearly six years after the federal government rescued the government-sponsored entities (GSE) Fannie Mae and Freddie Mac from likely collapse, Senate Banking Committee Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID) have announced a bipartisan framework for reforming the nation’s $10 trillion mortgage finance system and winding down mortgage giants Fannie and Freddie.

Sens Johnson and Crapo

Senate Banking Committee Chairman Tim Johnson (D-SD), left, and Ranking Member Mike Crapo (R-ID) have announced a bipartisan framework for reforming the nation’s $10 trillion mortgage finance system

Key features of the March 11 draft proposal by Johnson and Crapo include:

Replacing Fannie and Freddie with a new system of federally insured mortgage securities, in which private insurers must absorb the first 10 percent of mortgage losses before any government guarantee kicks in 

Transferring certain GSE functions to a new government “utility” known as the Federal Mortgage Insurance Corp. (FMIC), which would be modeled in part after the Federal Deposit Insurance Corp. (like the FDIC, the FMIC would establish a mortgage insurance fund to protect taxpayers from a future bailout) 

Ensuring that community banks and credit unions have direct access to the secondary market and equitable pricing with larger originators 

Building upon successful risk-sharing mechanisms and products currently utilized by the GSEs with respect to multifamily mortgage financing 

Requiring strong underwriting standards that mirror the new, stricter qualified mortgage criteria that went into effect this year, with a downpayment requirement of 5 percent (3.5 percent for first-time buyers)

While maintaining the “overall architecture” of the GSE reform bill (S. 1217) introduced by Senators Mark Warner (D-VA) and Bob Corker (R-GA) last summer, the Johnson-Crapo plan incorporates changes aimed at winning Democratic support.

 Senators Corker and Warner

While maintaining the “overall architecture” of the GSE reform bill (S. 1217) introduced by Senators Bob Corker (R-GA). left, and Mark Warner (D-VA) last summer, the Johnson-Crapo plan incorporates changes aimed at winning Democratic support.

President Obama last summer unveiled his own principles for mortgage finance reform that closely tracked those of the Warner-Corker bill (Roundtable Weekly, Aug. 9) — boding well for the new Johnson-Crapo framework. (The president’s plan would go farther in terms of helping first-time home buyers and making sure affordable rental housing is available.)

Actual legislative language for Johnson-Crapo could be introduced as early as today, with a markup anticipated this spring, after members have had time to review the legislation.

Financial industry analyst Karen Shaw Petrou stated that the Johnson-Crapo agreement would mean “a redesigned, smaller U.S mortgage market because it takes a tough stand on taxpayer protection. Rejecting Wall Street, the bill continues the 10 percent up-front buffer of private capital ahead of the taxpayer, putting a price tag of as much as $500 billion of the Street’s money at risk” (Bloomberg/BNA Daily Report for Executives, March 11).

Despite broad consensus on the Johnson-Crapo reform principles at the committee level, the plan could face opposition from lawmakers of both parties in both chambers — either because the proposal is not liberal enough on issues such as affordable housing, or too liberal (in terms of still maintaining a significant federal backstop for the U.S. mortgage market).

The House Financial Services Committee last summer narrowly approved Committee Chairman Hensarling’s (R-TX) bill to thoroughly privatize the secondary housing finance market, shut down Fannie and Freddie, and make big changes to the Federal Housing Administration (H.R. 2767). However, as the Dallas News reported March 11, in the eight months since the committee acted, Hensarling’s bill has yet to reach the House floor for a vote. 

  Hensarling Chairman - crop

The House Financial Services Committee last summer narrowly approved Committee Chairman Hensarling’s (R-TX), above, bill to thoroughly privatize the secondary housing finance market

During committee deliberations last July, Democrats expressed concern that the 30-year fixed-rate mortgage would largely become extinct under Hensarling’s bill, because it would make the product inaccessible or unaffordable to a majority of borrowers (Roundtable Weekly, July 26). Opponents also said Hensarling’s approach to GSE reform would require significantly bigger down payments from prospective home buyers, thus raising borrowing costs and potentially undermining the nascent housing recovery.

The Real Estate Roundtable continues to focus on constructive GSE reforms that ensure mortgage liquidity and capital availability; expand private capital participation; limit/mitigate market disruptions; and insulate the taxpayer from losses.

While private capital must bear the primary risk in any future housing finance system, a continuing and predictable government role remains necessary to promote investor confidence and ensure liquidity and stability for homeownership and rental housing. In The Roundtable’s view, this means including a mechanism for supporting the conventional multifamily loan market during periods when the private financing market is incapacitated or in distress.

As Roundtable President and CEO Jeff DeBoer asserted in an Aug. 6, 2013 press statement, “An effective 21st century housing finance system is one that provides the economy with the credit it needs to support housing, while protecting the taxpayer.”  

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TAX POLICY

House Lawmakers Discuss Internet Sales Tax Collection; Budget-Writers Ponder How to Address Camp’s Tax Reform Plan; Latest Installments of GlobeSt. Interview with DeBoer  

Six witnesses appeared before the House Judiciary Committee on Wednesday to discuss sales tax collection for online purchases — an issue of great importance to “brick-and-mortar” retailers, shopping mall owners, state governors (whose budgets are missing out on billions in uncollected taxes), and other stakeholders. 

House Judiciary Committee Chairman Bob Goodlatte (R-VA)

House Judiciary Committee Chairman Robert W. Goodlatte (R-VA) said the Marketplace Fairness Act had fundamental flaws

In an encouraging sign, Rep. Jason Chaffetz (R-UT) suggested he plans to use the framework of Senate-passed Internet sales tax legislation (S. 743) and its House counterpart (H.R. 3179), with revisions to “smooth the edges and get to where we need to go” (CQ Roll Call, March 12). His comments reportedly are in contrast to those who have declared the House bill (“Marketplace Fairness Act”) dead since Committee Chairman Robert W. Goodlatte (R-VA) said it had fundamental flaws.

Chaffetz and Goodlatte reportedly are most concerned about reducing the compliance burden on smaller retailers, and the potential for retailers to be audited by multiple states. The two lawmakers also wish to eliminate the Senate bill’s tax collection exemption for businesses with $1 million or less in gross U.S. remote sales — potentially replacing it with a phased-in approach. 

Chaffetz, whose state is home to Overstock.com, reportedly has been working with the chief sponsor of H.R. 3179, Rep. Steve Womack (R-Ark.), “to reach a compromise that satisfies Goodlatte’s priorities while also addressing governors’ complaints that their states lose as much as $23 billion a year in uncollected sales tax, largely from online purchases” (Bloomberg/BNA, March 13).

In a March 12 statement submitted in conjunction with the hearing, Roundtable President and CEO Jeffrey DeBoer outlined a “multitude of reasons” why the Internet sales tax issue is important to The Roundtable, its members, and commercial real estate as a whole.

Rep. Jason Chaffetz (R-UT)

In an encouraging sign, Rep. Jason Chaffetz (R-UT) suggested he plans to use the framework of Senate-passed Internet sales tax legislation (S. 743) and its House counterpart (H.R. 3179), with revisions to “smooth the edges and get to where we need to go.” 

Rather than encouraging job-creating capital investment without picking winners and losers in the marketplace, DeBoer said existing federal law governing retail activity “has had the opposite effect,” putting the owners of physical stores “at a significant and unfair competitive disadvantage relative to online retailers.”

He cited a study by the nonpartisan Congressional Budget Office (CBO) that said the current “uneven taxation of identical goods purchased from a local seller and a remote seller system” causes people to make purely tax-motivated decisions about consumption and production — leading to a loss of national income.

“State and federal tax policies should not result in two separate tiers of taxation that impose a higher burden solely on the basis of the medium in which a retail transaction occurs,” DeBoer asserted.

Also in conjunction with the hearing, more than 1,000 small-business owners wrote to Goodlatte urging him to move quickly on legislation authorizing states to collect sales tax from out-of-state Internet retailers.

“While we understand your desire to pursue alternative ideas, we hope that the House of Representatives and your committee will move quickly and judiciously in 2014 to level the retail playing field,” the small-business owners wrote in their March 10 letter. “True free market competition will not only support America’s local businesses, but will strengthen our economy and provide lower taxes for everyone” (The Hill, March 11

House Budget Writers Weigh How to Address Camp Tax Plan

In other tax news, House Budget Committee Republicans working on an annual budget blueprint for the coming federal fiscal year — due out next month — are reportedly unsure how to treat the recent tax restructuring proposal outlined by House Ways & Means Committee Chairman Dave Camp (R-MI).  

DeBoer GlobeSt Pt1 Tax March7-2014

GlobeSt.com's 3-part interview series with Roundtable President and CEO Jeffrey DeBoer.

As Politico reported Tuesday (March 11), Budget Committee Chairman Paul Ryan (R-WI) “has been promising a tax overhaul for three years, and if they continue to blithely promise reform while ignoring the difficult choices laid out in Camp’s proposal, Democrats will surely pounce.”

Ryan last year included a placeholder for Camp’s forthcoming work product. This year, some GOP committee members reportedly see no reason to incorporate Camp’s plan into their forthcoming budget, since the chairman’s draft must still go through legislative markup by committee. Others have called the Camp plan “too green,” saying it is merely a “starting point for discussion.”

GlobeSt. Interview with DeBoer

GlobeSt.com on Tuesday published the 2nd and 3rd installments of its lengthy interview with Roundtable President and CEO Jeffrey D. DeBoer about the vast implications of the Camp tax reform plan for commercial real estate.  The March 11 installment, which focuses on Camp’s proposed changes to the treatment of like-kind exchanges, the low-income housing tax credit (LIHTC), Section 179D energy efficiency tax deduction and other issues. (Read the entire 3-part, tax policy interview here)

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LAND USE AND IMMIGRATION POLICY

Senate House Bills Will Restore Confidence in Condo Construction, Attract Foreign Investment Capital to Support U.S. Development Projects Issues  

While Congress continues to debate the merits of broad and far-reaching proposals in areas such as tax reform, energy policy, and housing finance, more targeted bills are moving through the legislative process to spur real estate development and construction across the country. Specifically, a new Senate bill to reform the Interstate Land Sales Transfer Act will ease burdensome paperwork requirements in the context of condominium purchases, and a recent House bill will improve the so-called “EB-5” visa program to attract foreign investment capital to real estate, infrastructure, and other development projects in the U.S.

Sen. Schumer SOI 2011

Senators Charles Schumer (D-NY), above, Dean Heller (R-NV) and Kirsten Gillibrand (D-NY) on March 9 introduced S. 2101, to amend the application of the Interstate Land Sales Transfer Act (ILSA)  

Interstate Land Sales Transfer Act Reform

Senators Charles Schumer (D-NY), Dean Heller (R-NV) and Kirsten Gillibrand (D-NY) on March 9 introduced S. 2101, to amend the application of the Interstate Land Sales Transfer Act (ILSA) to contracts for new condominium purchases. Introduction of the Senate bill follows on the heels of a February letter sent by The Roundtable, the American Resort Development Association (ARDA), Building Owners and Managers Association (BOMA) International, and the National Association of REALTORS®, urging Senate Banking Committee leadership to act on identical legislation that passed the House of Representatives last fall. [Roundtale Weeky, Feb. 14, 2014.] 

The Schumer-Heller bill would relieve sales transactions of newly constructed condominium units from federal paperwork burdens imposed by ILSA. That law was enacted in 1969 to protect out-of-state buyers from unscrupulous real estate promoters selling worthless lots of raw land. S. 2101 clarifies that condominiums were never part of the problem that ILSA was designed to address. Like companion legislation that unanimously passed the House (H.R. 2600, supported by Reps. Carolyn Maloney (D-NY), Patrick McHenry (R-NC) and other co-sponsors) last September, the Senate bill exempts condo unit sales from the law’s burdensome registration and paperwork disclosures required by the federal Consumer Financial Protection Board (CFPB). [Roundtable Weekly, Sept. 27, 2013]

Since the start of the Great Recession, some condo buyers have improperly seized on ILSA as a means of channeling their remorse and backing out of otherwise-legal contracts. S. 2101 would prevent such abuses by clarifying that, absent some purposeful fraud, contracts for condo unit sales cannot be rescinded simply because of paperwork technicalities. 

REBNY - Steven Spinola

Steve Spinola, president of the Real Estate Board of New York (REBNY)

“ILSA is an important consumer protection statute,” the real estate groups stated in their Coalition’s Feb. 3 letter to Senate Banking Committee leaders states. “But the law has strayed from its original purpose insofar as it has been stretched to cancel condo unit sales in buildings on developed sites, in urban and suburban areas, where the developments plans have been approved by multiple levels of government and follow local disclosure requirements that are often duplicative of ILSA requirements.”

“Reforming ILSA has been a top priority for the real estate industry since the economic downturn of 2008 when the enforcement of ILSA was used as a tool to escape condo purchase agreements by buyers,” said Steve Spinola, president of the Real Estate Board of New York (REBNY). “Closing the ILSA loophole restores confidence in the condo construction market and reduces unnecessary federal bureaucracy while keeping important fraud protections in place. We applaud and thank Senators Schumer, Gillibrand and Heller and Congressmembers Maloney, Grimm, Nadler and McHenry for their vision and leadership on this important issue.”

EB-5 “Immigrant Investor” Visa Reform

Meanwhile, Representatives Jared Polis (D-CO), Matt Salmon (R-AZ), Joe Garcia (F-FL) and Mark Amodei (R-NV) on March 6 introduced the American Entrepreneurship and Investment Act of 2014 (H.R. 4178), which would streamline and make more predictable the EB-5 “immigrant investor” visa program. The Roundtable and other national real estate organizations have weighed in to support common sense EB-5 reform in recent years. [Roundtable Weekly, June 14, 2013 and August 3, 2012.]

H.R. 4178 would make the EB-5 “regional center” program permanent; alleviate processing backlogs by eliminating visa caps for countries where foreign investors have keen interest in American projects; increase efficiencies by allowing pre-approval of business plans before attracting immigrant investment funds to a project; and reform definitions to properly account for seasonal and intermittent workers (such as construction workers) as part of EB-5’s job creation requirements.

 EB 5 Visa Image

Roundtable President and CEO Jeffrey D. DeBoer said, "In an increasingly competitive global marketplace, we support H.R. 4178 to help give our country the competitive edge we need to attract foreign investment capital and talent to our shores.”

Further, H.R. 4178 would clarify that “targeted employment areas” — a key designation for EB-5’s implementation and success in urban and suburban growth centers — are properly determined by states, because they are best equipped to assess local employment needs. H.R. 4178 thus represents an important improvement over other recent EB-5 reform efforts. [Roundtable Weekly, June 28, 2013]

To date, the U.S. Citizenship and Immigration Service (USCIS) has approved over 440 EB-5 regional centers across all 50 states, the District of Columbia, and the territories. These centers promote economic growth by channeling foreign investments to a variety of job-creating projects. Moreover, H.R. 4178 would continue to ensure that the EB-5 platform runs at no cost to taxpayers, as visa processing and other fees pay for the program.

“Cross-border investment is a growing and potent force in real estate, infrastructure and other U.S. development projects,” said Roundtable President and CEO Jeffrey D. DeBoer. “H.R. 4178 is the type of bipartisan, pro-growth immigration measure that is good for U.S. businesses, property owners, and workers. In an increasingly competitive global marketplace, we support H.R. 4178 to help give our country the competitive edge we need to attract foreign investment capital and talent to our shores.”

While broad and comprehensive immigration reform has stalled in the House, Speaker John Boehner (R-OH) and other members of his leadership team have mentioned that piecemeal, targeted measures might move in that chamber to address various elements of the U.S. immigration system. The Roundtable will continue to coordinate with other stakeholders to urge that EB-5 reform is at the top of that agenda.  

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