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   
 
  
  

Policy Issues SnapshotJuly 2017
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 2017 National Policy Agenda, Real Estate: A Foundation for Growth, includes a section on Capital & Credit Policy.

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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.

 Cumulative Impact of Regulation  

 Various Legislative Measures to Address Credit Capacity and Capital Formation  Introduced in the 115th Congress

 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

✓ New Economic Team Focuses on Economic Growth; Improved Outlook for Regulatory Reforms  
The Trump economic team has an ambitious agenda on a number of key issues. They are focused on enacting measures to help grow the economy – including efforts to reduce regulations viewed as burdensome or hindering economic growth.

Working with a Congress where both chambers are run by Republicans for the first time in a decade – they have an opportunity to provide the business community with regulatory relief on a number of key areas – including financial services issues. 

The Administration has already stalled the implementation of new regulations and are also focused on repeal or reform of Dodd-Frank, and potential diminution of new Basel rules.CRE. 

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The Roundtable's 2017 National Policy Agenda, Real Estate: A Foundation for Growth, includes a section on Capital & Credit Policy

✓ Cumulative Impact of Regulation     
Over the next three years, approximately $1 billion a day in commercial real estate debt is maturing – including some $411 billion in commercial bank debt and $265 billion of CMBS loans. So, maintaining adequate credit capacity is vital for CRE.

As financial institutions absorb a multitude of overlapping regulations, we continue to raise concerns with policymakers about the cumulative impact these rules are having on real estate credit capacity, liquidity and capital formation.

Our specific concerns are focused on various Dodd-Frank and Basel rules including:
- Dodd-Frank Risk-Retention Rules
- Dodd-Frank Volcker Rule
- Basel III High Volatility Commercial Real Estate (HVCRE)
- Basel III Liquidity Coverage Ratio rule (LCR)
- Basel III Net Stable Funding Ratio (NSFR)

To encourage stability in real estate credit capacity and capital formation, policymakers should consider balanced reforms to certain provisions of Basel III and Dodd-Frank.

The Roundtable encourages policies that provide relief from overly restrictive regulation and support measures that would encourage capital formation, balanced lending and investments in the U.S. economy—supporting job creation and economic growth..  

✓ Various Legislative Measures to Address Credit Capacity and Capital Formation  Introduced in the 115th Congress     
The Roundtable supports the bipartisan Clarifying High Volatility Commercial Real Estate Loans (H.R. 2148) introduced recently by House Financial Services Committee members Rep. Robert Pittenger (R-NC) and David Scott (D-GA).  The legislation is designed to clarify and reform the Basel III High Volatility Commercial Real Estate (HVCRE) Rule. 

House Financial Services Committee Chair Jeb Hensarling’s (R-TX) Financial CHOICE (Creating Hope and Opportunity for Investors, Consumers, and Entrepreneurs) Act of 2017 (H.R. 10) was reported out of the House Financial Services Committee in early May and passed the House on June 8 by a vote of 233 to 186. 

The sweeping 589-page legislation is intended to provide much-needed regulatory relief to commercial banks by rolling back certain portions of Dodd-Frank and Basel III, including a number of provisions that affect real estate credit capacity and capital formation, such as the Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR), and the Risk Retention and Volcker Rules – providing banking institutions more clarity on real estate lending and with the ability to more effectively engage in market making, thereby improving liquidity.

In exchange for this regulatory relief, commercial banks would be required to maintain higher capital reserves through an optional capital election. The CHOICE Act addresses many of the industry’s concerns, while advancing important reforms, strengthening the financial services sector as well as the American economy.   

✓ Reforming the Government Sponsored Enterprises (GSEs)      

Nine years after the GSEs – Fannie Mae and Freddie Mac – were put into conservatorship, the housing finance system has still not been reformed. GSE reform is a top priority for the Trump Administration, House Financial Services Committee Chair Jeb Hensarling and Senate Banking Committee Chair Mike Crapo (R-ID), but their plans are not yet clear.

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.   

✓ Reauthorizing the National Flood Insurance Program (NFIP); Expanding Private Markets  
Without Congressional action, the NFIP will sunset Sept. 30, 2017. As part of the reauthorization process, Congress is considering 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. As a result, Congress enacted the NFIP in 1968 in response to the lack of availability of private insurance and continued increases in federal disaster assistance due to floods. NFIP coverage is available for homeowners, renters and small businesses.

The Roundtable and its partner associations support a long-term reauthorization and reform of the NFIP. We also support efforts to 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.    

✓ Terrorism Risk Insurance Program Extended  
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. Working with the Treasury Department’s Federal Insurance Office (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. require.

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.stable valuations, enhanced transparency and sensible underwriting, and support efforts to establish appropriate systemic safeguards—all key factors for a reliable credit system. 

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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 Real Group) and Mark Myers (Wells Fargo) and vice-chaired by 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 or via e-mail at crodgers@rer.org.

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