Policy Issues
Capital and Credit

Roundtable Remains Focused on Maintaining Reliable Credit Capacity, Capital Formations; Minimizing Regulatory Overreach; and Effective Risk Management Tools Vital to Liquidity   

2018 Policy Issues Snapshot
More detailed information on various Capital and Credit policy issues can be found in recent issues of Roundtable Weekly — our weekly policy eNewsletter that can searched by key word or phrase.  The Roundtable's 2018 National Policy Agenda: A Building For the Future, also includes a section on Capital & Credit Policy.


News on various credit and capital issues can be found in recent issues of Roundtable Weekly — our weekly policy eNewsletter that can searched by key word or phrase.


 Volcker Rule

 Dodd Frank Reform Bill - HVCRE

Reforming the Government Sponsored Enterprises (GSEs)

Reauthorizing the National Flood Insurance Program (NFIP); Expanding Private Markets  

Developing an Effective, Long-Term Terrorism Risk Insurance Program

LIBOR Reform 

CFIUS Reforms to Expand Review of Certain Real Estate Transactions

• New Beneficial Ownership Rule Affects Real Estate Transactions


✓ Recent Developments:

⇒ 09/07/2018      GSEs - Government Sponsored Entities
GSE REFORM - September 7, 2018 - Roundtable Weekly 
Top Republican Unveils Bipartisan Housing Finance Reform Bill 

⇒ 07/20/2018      Capital and Credit;Federal Reserve
CAPITAL AND CREDIT - July 20, 2018 - Roundtable Weekly 
Fed Chairman Testifies to Congress on Interest Rates; Banks Concerned About CRE Lending Risk 

⇒ 07/13/2018      Capital and Credit
CAPITAL & CREDIT — LIBOR - July 13, 2018 - Roundtable Weekly 
Regulators Emphasize Need for Transition Away From LIBOR to New Standard by End of 2021; Roundtable to Address Impact on Commercial Real Estate Finance 

 ⇒ 06/08/2018      Capital and Credit;Volcker Rule
CAPITAL & CREDIT - VOLCKER RULE - June 8, 2018 - Roundtable Weekly 
Five Regulatory Agencies Clear Path for Volcker Rule Changes 

⇒ 05/25/2018      
DODD-FRANK REFORM - HVCRE - May 25, 2018 - Roundtable Weekly 
President Trump Signs Dodd-Frank Reform Bill With HVCRE Revisions 

⇒ 04/13/2018      Commercial Real Estate Markets;Economy
ECONOMIC GROWTH and CRE - April 13, 2018 - Roundtable Weekly 
New Reports Measure Impact of Tax Reform on Real Estate Investment and CRE's Impact on National, State Economies - April 13, 2018 - Roundtable Weekly 

✓ Trump Economic Team Remains Focused on Economic Growth; Regulatory Reforms
The economy added a total of 201,000 jobs during the month of August – a stronger number than analysts predicted, underpinning the nation’s solid economic expansion and a 49-year low in unemployment.

The U.S. economic expansion is now in its ninth year – the second longest on record – with the unemployment rate at the lowest since 2000. The number of available U.S. jobs now exceeds the number of unemployed people.

Despite trade war fears and increased market volatility, the Federal Reserve has revised this year’s economic growth up to 2.7 percent.

The Trump administration is hoping the economy will accelerate further this year, aided by sizable tax cuts and increased government spending. The economic team continues to pursue an ambitious agenda to enact measures that will help grow the economy.


✓ Volcker Rule Revisions Proposed by Fed

The Federal Reserve and other U.S. financial regulatory agencies recently proposed a revision to the 964-page Volcker rule – one of the most controversial rules developed under the Dodd-Frank Act.

The nearly 400-page proposal, known as Volcker 2.0, would allow banks to do limited trading for themselves and to hold interests in hedge funds and private equity funds to hedge risk on behalf of non-bank clients. If adopted, this proposed revision is expected to enhance liquidity to commercial mortgage backed securities (CMBS) markets.

Fed Chairman Jerome Powell said regulators aim “to replace overly complex and inefficient requirements with a more streamlined set of requirements.”

In a 2012 comment letter to Federal Reserve and other financial regulatory agencies, the Roundtable raised concerns about the unintended consequences of the Volcker Rule that could "negatively impact liquidity and capital formation in commercial real estate".


 ✓ President Signs Dodd-Frank Reform Bill - Key HVCRE Rule Revision Included
President Trump signed the bipartisan Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) into law on May 24. This measure would help “right-size” regulations on regional banks and relax restrictions on parts of the banking industry – representing the most significant changes to Dodd-Frank since its enactment in 2010.

Sec. 214 of the law includes the Clarifying Commercial Real Estate Loans language from the House-passed H.R. 2148 and S. 2405, clarifying the treatment of High Volatility Commercial Real Estate (HVCRE) and High Volatility Acquisition, Development or Construction (HVADC) loans.

The provision will help clarify and promote sustainable acquisition, development and construction and lending by addressing key deficiencies in the agencies’ current and proposed regulations governing the criteria for HVCRE or HVADC loans. It provides for the following modifications and clarifications:

• The 15% equity requirement would be revised to expressly include contributed land/property at the appreciated land value as determined by a FIRREA appraisal and bank review (versus the cost basis under the current rule).
• Clarifies that loans made to acquire existing property with rental income and/or do cosmetic upgrades and other improvements don't trigger the capital penalty.
• A new exemption would be added to the HVCRE rule covering acquisition/refinancing loans for performing income producing properties.
• Allows borrowers to use internally generated capital in the project and, once the development/construction risk period has passed, outside the project, rather than forcing them to refinance the loan (possibly away from the original lender).
• All ADC loans made prior to January 2015 would be grandfathered and would not have to satisfy current HVCRE exemption criteria.
• Banks would able to withdraw HVCRE status prior to the end of an ADC loan’s term.

While the law was effective immediately, we encourage regulators to issue the final regulations .


 ✓ Reforming the Government Sponsored Enterprises (GSEs)    

Ten years after the GSEs – Fannie Mae and Freddie Mac – were put into conservatorship, the U.S. housing finance system has still not been reformed.

House Financial Services Committee Chairman Jeb Hensarling (R-TX) and Rep. John Delaney (D-MD) recently unveiled a new bipartisan housing finance reform plan that would repeal the charters of mortgage giants Fannie Mae and Freddie Mac.

The plan would allow qualified mortgages backed by a private credit enhancer with capital resources to access the explicit government securitization guarantee provided by Ginnie Mae.

GSE reform remains a top priority for the Trump Administration, House Financial Services Committee Chair Jeb Hensarling (R-TX) and Senate Banking Committee Chair Mike Crapo (R-ID), but it all comes down to reaching an agreement in the Senate.

Hensarling also reintroduced the Protecting American Taxpayers and Homeowners Act (or PATH Act), despite knowing it has little chance of passing. The PATH Act was originally introduced in 2013 and worked its way through the House of Representatives, as two competing bills (the Corker-Warner and Johnson-Crapo bills) stalled in the Senate. 

 Despite bipartisan reform efforts by Senate Banking Committee Chairman Mike Crapo (R-ID), Senators Bob Corker (R-TN) and Mark Warner (D-VA), the Committee remains deadlocked on advancing legislation to reshape the housing finance market.

Successful reform should meet the housing finance needs of the American economy while protecting the taxpayer. The Roundtable encourages lawmakers to build upon successful risk sharing mechanisms and products by employing the existing multifamily finance structures being utilized by Fannie Mae and Freddie Mac.


 ✓ Improving and Reauthorizing the National Flood Insurance Program (NFIP); Securing a Commercial Opt-Out Provision
The NFIP was scheduled to sunset on July 31, 2018, but the program was temporarily extended until Nov. 30, 2018.  The House passed a reform bill in Nov. 2017, but the Senate has yet to act on a  reauthorization bill.

As part of the reauthorization process, the Senate is still debating potential changes and improvements to the program. Their goal is to find a balance between improving the financial solvency of the program, reducing taxpayer exposure and addressing affordability concerns.

Floods are the most common and most destructive natural disaster in the U.S., and there is limited private market capacity. NFIP coverage is available for homeowners, renters and small businesses.

Reauthorization of the NFIP is important for residential markets, overall natural catastrophe insurance market capacity and the broader economy. However, under the NFIP, commercial property flood insurance limits are low – $500,000 per building and $500,000 for its contents. 

Lenders typically require this base NFIP coverage, and commercial owners must purchase Supplemental Excess Flood Insurance for coverage above the NFIP limits. The NFIP's low commercial limits make it problematic for most commercial owners.  As a result, we have been seeking a voluntary exemption for mandatory NFIP coverage if property owners have flood coverage from commercial insurers.

By permitting certain private issue insurance policies to satisfy the NFIP’s “mandatory purchase requirement” for properties in flood plains financed by loans from federally guaranteed institutions, commercial property owners would have the ability to "opt-out" of mandatory NFIP commercial coverage if they have adequate private coverage outside the NFIP program to cover financed assets.

The Roundtable and its partner associations support a long-term reauthorization and improvements of the NFIP that would that expand private markets. Given the low coverage amounts provided to commercial properties, it is important to permit larger commercial loans to be exempted from the mandatory NFIP purchase requirements.


 ✓ Developing an Effective, Long-Term Terrorism Risk Insurance Program

Terrorism continues to pose a clear and present danger to our nation and to the American economy. Originally enacted in 2002, in response to the failure of insurance markets to offer terrorism risk coverage to commercial policyholders, the Terrorism Risk Insurance Act (TRIA) was extended in 2005, 2007 and again in 2015 – following a 12-day lapse when Congress failed to complete their work on reauthorization at the end of 2014.

TRIA is essential for commercial real estate as lenders require “all risk” insurance coverage – including terrorism coverage – to cover the risk of loss to the collateral. At virtually no cost to the taxpayer, TRIA has allowed our economy to move forward even in the face of terrorist threats.

Yet, the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) is scheduled to sunset on Dec. 31, 2020.

The Treasury’s Federal Insurance Office (FIO) released a report The Effectiveness of the Terrorism Risk Insurance Program in June that concludes:

  • The Program generally has been effective in making terrorism risk insurance available and affordable in the insurance marketplace.
  • Treasury has not observed any aspects of the Program (either based upon the collected data or operation of the Program generally) that have had the effect of discouraging or impeding insurers from providing P&C insurance in general, or coverage for acts of terrorism specifically.
  • The Program serves as an important backstop to workers’ compensation insurance, given that under state law, workers’ compensation insurance must cover terrorism risk, is not subject to limits of liability, and cannot exclude causes of loss posing extreme aggregation risks.
  • Treasury’s estimate of total earned premiums for terrorism risk insurance from 2003 to 2017 is approximately $37.6 billion (excepting captive insurers), which is between 1 and 2 percent of the total premiums earned in the TRIP-eligible lines of insurance during that period.

Working with the FIO, the TRIA Advisory Committee on Risk-Sharing Mechanisms (ACRSM), the insurance industry, and Congressional policymakers, The Roundtable is focused on developing an effective, long-term approach for a federal terrorism risk insurance program.

Such a long-term program should enable policyholders to secure the terrorism risk coverage they need without facing periodic renewals by the federal government.


   ✓ LIBOR Reform

With the London Interbank Offer Rate (LIBOR) index rate set to expire at the end of 2021, regulators are working to develop an alternative reference rate. In the U.S., the Fed’s Alternative Reference Rates Committee (ARRC) is coordinating this process.

The Federal Reserve Bank of New York in April began publishing an alternative U.S. benchmark to work alongside LIBOR.  The Secured Overnight Financing Rate (SOFR) is seen as more reliable, as it is based on interest rates in the U.S. market for repurchase agreements instead of LIBOR's estimated quotes by bankers in the relatively thin interbank loan market.

LIBOR's credibility was badly undermined a decade ago by a rate-manipulation scandal. These illegal actions damaged the public's trust in LIBOR, financial markets and institutions. The United Kingdom’s Financial Conduct Authority (FCA), which regulates LIBOR, announced last year that it will phase out the global borrowing index by 2021.

RECPAC has formed a LIBOR Working Group to address this challenge and work toward the development and implementation of an effective, new replacement benchmark that does not impair liquidity, needlessly increase borrowing costs or cause market disruptions. Importantly, we also want to work to minimize the need for making modifications to existing loan documents.


   ✓ CFIUS Reforms to Expand Review of Certain Real Estate Transactions

The Foreign Investment Risk Review Modernization Act (FIRRMA) was signed into law by President Trump on August 13. FIRRMA reforms and modernizes the Committee on Foreign Investment in the United States (CFIUS) review process and represents the first update to the CFIUS statute in more than a decade. CFIUS is a U.S. interagency committee that conducts national security reviews of foreign investment.

The measure was part of the National Defense Authorization Act for Fiscal Year 2019 (NDAA) – a compromise $717 billion defense policy bill aimed at building up the military and blunting Chinese foreign investment – which includes language that may affect some foreign purchases and leases of real estate near military and other strategic facilities.

FIRMMA expands the review authority of CFIUS to review national security implications of transactions that could result in control of a U.S. business by a foreign person and to block transactions or impose measures to mitigate any threats to U.S. security.

FIRRMA also expands the list of covered transactions to include some foreign purchases and leases of real estate near military and other strategic facilities.  Responding to concerns raised by The Roundtable and other industry groups, language is also included that exempts real estate located in an 'urbanized area' from the criteria of a covered transaction.  The Census defines an urbanized area as one comprising more than 50,000 people.  The real estate provision contained in Title II, Sec. 201 includes the carve-out for properties in an "urbanized area":

"The purchase or lease by, or concession to, a foreign person of private or public real estate that— is located in the United States and is, or is in close proximity to a United States military installation; or itself, or is located at and will function as part of, an air or sea port; is not a single housing unit, as defined by the Bureau of the Census; is not in an urbanized area, as set forth by the Bureau of the Census in its most recent census, except as otherwise prescribed by the Committee in regulations in consultation with the Secretary of Defense; and meets such other criteria as the Committee  prescribes by regulation."

China’s 13th Five-Year Plan seeks to create new Chinese competitors that pose threats to U.S.

CFIUS recently ordered Chinese conglomerate HNA Group Co., Ltd to sell its majority stake in a 21-story Manhattan building whose tenants include a police precinct assigned to protect Trump Tower.

   ✓ New Beneficial Ownership Rule Affects Real Estate Transactions

A new rule from the Financial Crimes Enforcement Network (FinCEN) – Customer Due Diligence Requirements for Financial Institutions” (the CDD Rule) – was enacted May 11, 2018 that  amends Bank

Secrecy Act (BSA regulations, to improve financial transparency and prevent criminals and terrorists from misusing companies to disguise their illicit activities and launder their ill-gotten gains.

The BSA requires all covered financial institutions to collect, verify from certain non-exempt legal entities specific information about the beneficial owners of the entity at the time a new account is opened. 

The CDD Rules adds a new requirement for these covered financial institutions to identify and verify the identity the natural persons (known as beneficial owners) of legal entity customers who own, control, and profit from companies when those companies open accounts.

The rule’s intent is to assist authorities in counteracting money laundering, tax evasion, and other financial crimes.



The Real Estate Roundtable supports efforts to promote economically responsible commercial real estate lending that reflects sound underwriting and risk management practices, and rational pricing of economic risk. We continue to urge policymakers to take action that encourages stable valuations, enhanced transparency and sensible underwriting, and support efforts to establish appropriate systemic safeguards — all key factors for a reliable credit system.

(For more information, please email info@rer.org or call 202-639-8400.  For weekly updates on key policy issues affecting commercial real estate, see our eNewsletter  Roundtable Weekly

The Real Estate Capital Policy Advisory Committee (RECPAC) is co-chaired by Dennis Lopez (QuadReal Property Group), Mark Myers (Wells Fargo) and Diana Reid (PNC Real Estate).   RECPAC consists of principal members from a broad spectrum of real estate investment, ownership and financial services companies. 

For additional information on RECPAC issues, please contact Clifton (Chip) E. Rodgers, Jr., Senior Vice President, The Real Estate Roundtable, at (202) 639-8400.

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