Roundtable Weekly - April 5, 2019

Opportunity Zones: Treasury Regs Expected Soon; Reporting Legislation Discussed; White House Hosts Opportunity and Revitalization Council Meeting

President Trump yesterday hosted the first meeting of the White House Opportunity and Revitalization Council and introduced its new Executive Director – Texas state legislator and former NFL player Scott Turner – to lead a coordinated Administration effort to revitalize economically distressed communities.   (White House tweet, April 4 and Scott Turner intro video)

 

President Trump yesterday hosted the first meeting of the White House Opportunity and Revitalization Council and introduced its new Executive Director – Texas state legislator and former NFL player Scott Turner – to lead a coordinated Administration effort to revitalize economically distressed communities.   (White House tweet, April 4 and Scott Turner intro video)

– enlarge White House photo above –

  • Trump stated during the cabinet-level meeting, "We're providing massive tax incentives for private investment in these areas to create jobs and opportunities where they are needed the most.  This Council will further leverage federal resources and authorities to support these communities however possible.  We will work to streamline regulations, improve education, promote affordable housing, reduce crime, and expand jobs and skilled training for Americans all throughout our country.  Our actions will directly improve the lives of countless low-income Americans."  (Remarks by President Trump at the White House Opportunity and Revitalization Council Meeting, April 4)
  • Treasury Assistant Secretary for Tax Policy David Kautter stated at an April 1 conference that the highly-anticipated, second set of Treasury Opportunity Zone (OZ) regulations could be issued in "a couple of weeks."  Those regulations have been under review since mid-March and according to Kautter, their release will likely include a request for comments concerning the type of information the IRS should consider.  (Tax Notes, April 5)
  • Sen. Tim Scott (R-SC), who led the effort in Congress for enactment of the OZ program, said he is discussing legislation with Sen. Cory Booker (D-NJ) that would reinstate reporting requirements—including investor asset class, zones receiving investment, poverty reduction, and job creation—showing the effects of OZ tax breaks on local communities.  (BloombergTaxMarch 28 and March 27)
  • The OZ program's goals and incentives were the focus of a Jan. 29 discussion during The Real Estate Roundtable's State of the Industry Meeting, which featured Sen. Scott and Roundtable member Geordy Johnson (CEO, Johnson Development Associates, Inc.). (Roundtable Weekly, Feb. 15)
  • Last June, the Treasury Department designated more than 8,700 low-income census tracts in the United States, Puerto Rico, and territories as qualified Opportunity Zones. (IRS Notice 2018-48)  

Congress created the Opportunity Zone tax incentive program in the 2017 Tax Cuts and Jobs Act. Incentives reward Opportunity Fund investors with a capital gains deferral or exclusion on their invested capital in low-income communities.  (Roundtable  Opportunity Zones webpage)

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Affordable Housing

Senate Confirms Mark Calabria as FHFA Director Overseeing Fannie Mae and Freddie Mac

The Senate yesterday confirmed Mark Calabria, previous chief economist to Vice President Mike Pence, as director of the Federal Housing Finance Agency (FHFA) – the federal regulator overseeing Fannie Mae, Freddie Mac and the multi-trillion dollar Federal Home Loan Bank System. 

The Senate yesterday confirmed Mark Calabria, previous chief economist to Vice President Mike Pence, as director of the Federal Housing Finance Agency (FHFA) – the federal regulator overseeing Fannie Mae, Freddie Mac and the multi-trillion dollar Federal Home Loan Bank System.

  • Calabria will now have broad influence over reshaping the role of the Government Sponsored Enterprises (GSEs) brought under government conservatorship during the financial crisis. 
  • Senate Banking Committee Chairman Mike Crapo (R-ID) said on the Senate floor yesterday that Calabria "committed to working with me, and other members of this body, to reach a comprehensive solution on ending the conservatorship of Fannie and Freddie, once and for all.  He agrees with me, and many others, that action on housing finance reform is the prerogative of Congress, and that after over a decade of conservatorship, it is long overdue."  (Politico, April 4) 
  • Sen. Crapo and President Trump last week launched separate efforts aimed at reforming the multi-trillion-dollar financial market for single-family and multifamily mortgages, including the GSEs' Fannie Mae and Freddie Mac.  Chairman Crapo's  recent housing reform outline proposes to return the GSEs to private control.  (Roundtable Weekly, Feb. 8) 
  • Sen. Crapo will be a featured speaker at next week's Spring Roundtable Meeting in Washington. 
  • President Trump last week released a presidential memo directing "the Secretary of the Treasury and the Secretary of Housing and Urban Development to craft administrative and legislative options for housing finance reform."  (Wall Street Journal, March 27) 
  • President Trump also aims to end the GSEs' conservatorship, "promote competition in the housing finance market ... create a system that encourages sustainable homeownership and protects taxpayers against bailouts."  The memo supports the preservation of the 30-year fixed-rate mortgage. ( White House announcement, March 27) 
  • A coalition of 23 national real estate organizations, including The Real Estate Roundtable, sent a letter supporting Calabria's confirmation this week to Senate leadership.  (Coalition confirmation support letter, April 1) 

The Real Estate Roundtable and 27 industry organizations last month submitted principles for reforming the GSEs. (Roundtable Weekly, March 1) 

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Financial Accounting Standards Board (FASB) Rejects Bank Proposal on Loan Losses

The Financial Accounting Standards Board (FASB) this week voted to reject a proposal by regional banks to soften the impact of a change that will force banks to book losses on bad loans much faster.  This rejection means that the Current Expected Credit Loss (CECL) accounting standard will proceed as planned at the beginning of 2020 for publicly traded U.S. banks and later for other financial institutions.  A business coalition that included The Real Estate Roundtable last month had urged further study amid concerns that CECL may soon begin to reduce aggregate bank lending.  (Coalition Letter, March 5)

  

The Financial Accounting Standards Board (FASB) this week voted to reject a proposal by regional banks to soften the impact of a change that will force banks to book losses on bad loans much faster.

  • The new CECL model will require certain financial institutions to estimate the expected loss over the life of a loan beginning in January 2020 – a significant change to the way banks calculate reserves on assets.  CECL may cut into earnings and regulatory capital by forcing some banks to boost their loan-loss reserves.  (Wall Street Journal, April 3) 
  • For real estate, there is concern is that banks may reduce lending volumes as they build up additional capital reserves to be in compliance with CECL.  (Roundtable Weekly, March 8) 
  • The regulatory change in how banks estimate loan and lease losses (ALLL) will require substantial changes in data analytics and financial methodologies.  Details on FASB's April 3 Tentative Board Decision are available here
  • The March 5 coalition letter cited a 2018 KPMB survey showing companies are struggling to make certain accounting, modeling and data decisions to be in compliance with CECL.  (KPMG, "Financial institutions feeling the crunch in countdown to CECL implementation")  
  • Rep. Blaine Luetkemeyer (R-MO) and Ranking Member Patrick McHenry (R-NC) recently wrote to Securities and Exchange Commission Chairman Jay Clayton expressing concerns about the coming CECL loan loss accounting approach and its effects on markets and investors.  Luetkemeyer and McHenry wrote that they are worried CECL implementation-which begins in 2020 for publicly traded banks-could have unanticipated effects on the financial and housing industries with questionable benefit.  
  • The CECL accounting rule change was issued by the Financial Accounting Standards Board (FASB) in June 2016 as a result of the 2008 financial crisis.  (FASBCredit Losses
  • The Roundtable's Real Estate Capital Policy Advisory Committee (RECPAC) will continue to address the potential impact of the new accounting standard and work with the CECL business coalition on CECL implementation issues. 

In addition to The Roundtable, the 8 signatories to the March 5 coalition letter were the U.S. Chamber of Commerce, American Bankers Association, Bank Policy Institute, Commercial Real Estate Finance Council, Mortgage Bankers Association, National Association of Realtors, Credit Union National Association and National Association of Federal Credit Unions. 

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