Category: Roundtable Weekly

CECL Accounting Standard Implementation Delayed for Certain Lenders

Posted on by Trey Jackson

The Financial Accounting Standards Board (FASB) on Wednesday passed a proposal that would give more time to smaller lending institutions to adopt the Current Expected Credit Losses (CECL) accounting standard, which forces lenders to book losses on bad loans much faster. ( ABA Banking Journal , July 17)

FASB Chairman Russell Golden stated, “Additional time would give the stakeholders more ability to learn from larger lenders, more ability to have resource providers available, and more ability to look at best practices for disclosures and controls.”  
  • The delay would set January 2023 as the new deadline for small public lenders, private lenders and nonprofits (such as credit unions) to implement CECL.  (Credit Union National Association, July 17) 
  • CECL would still take effect for publicly traded U.S. banks beginning in January 2020.  The regulatory change in how banks estimate losses in their allowance for loan and lease losses (ALLL) will require substantial changes in data analytics and financial methodologies. 
  • FASB Chairman Russell Golden stated, “Additional time would give the stakeholders more ability to learn from larger lenders, more ability to have resource providers available, and more ability to look at best practices for disclosures and controls.” (Wall Street Journal, July 17) 
  • FASB is expected to release the proposed accounting standard changes in August, subject to a 30-day comment period.  
  • For real estate, there is concern that banks may reduce lending volumes as they build up additional capital reserves to be in compliance with CECL.   A business coalition that included The Real Estate Roundtable wrote to the U.S. Securities and Exchange Commission (SEC) and FASB in March, urging further study amid concerns that CECL may soon begin to reduce aggregate bank lending.  (Coalition Letter, March 5 and Roundtable Weekly, March 8) 
  • Congressional legislation to delay CECL’s implementation was introduced in the Senate on May 21 by Sen. Thom Tillis (R-N.C.) and in the House on June 10, led by Rep. Vicente Gonzalez (D-TX). (S&P Global Intelligence, June 11) 
  • This week, FASB posted a Q&A document addressing various CECL implementation issues, including how to make a “reasonable and supportable” forecast of expected loan losses.  FASB also plans a series of CECL educational workshops throughout the country.  (FASB Advisory, July 17) 
  • The CECL accounting rule change was issued in June 2016 by FASB as a result of the 2008 financial crisis.  (FASB, Credit 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 implementation issues. 

 

Senators Portman, Shaheen, Reintroduce Energy Efficiency Bill

Posted on by Trey Jackson

A bipartisan bill reintroduced July 17 by Sens. Rob Portman (R-OH) and Jeanne Shaheen (D-NH) includes provisions to advance energy efficiency standards for U.S. real estate by fostering market incentives, data-driven research, and open government procedures.  

Roundtable President and CEO Jeffrey D. DeBoer, left, with Sens. Rob Portman (R-OH) and Susan Collins (R-ME) at a press conference to support the Energy Savings and Industrial Competitiveness (ESIC) Act.
  (  Video of DeBoer’s statement and  the entire press event)

– enlarge photo above  –  
  • Roundtable President and CEO Jeffrey D. DeBoer joined other industry and environmental group leaders at a press conference Wednesday in the Senate to support the Energy Savings and Industrial Competitiveness (ESIC) Act.  (Video of DeBoer’s statement and entire press event)
  • The ESIC Act is a revived version of comprehensive energy efficiency legislation introduced in prior sessions of Congress. (Bill summaryand  text.)  
  • The Real Estate Roundtable has long endorsed the ESIC Act.  The bill contains no mandatory federal building or climate-related regulations.  It aims to improve energy efficiency across U.S. buildings by:  
    • Importing new economic, cost, and small business impact considerations into the process by which the U.S. Department of Energy (“DOE”) proposes revisions to “model” building energy codes, that state and local bodies may ultimately adopt; 
    • Providing stakeholders with opportunities to comment on code revisions suggested by DOE – to correct the currently closed process by which federal code proposals are developed without industry input;  
    • Clarifying standards for real estate appraisers and banks to consider energy efficiency capital investments when determining an asset’s market value; and
    • Creating a voluntary program that can lead to lower interest rates and greater qualifications for buyers seeking mortgages on new energy efficient homes.

            

  • The Portman-Shaheen bill also includes new Section 103 , strongly supported by The Roundtable.  This provision would require coordination by federal agencies to gather and report higher quality data on energy consumed by U.S. buildings, through the nationwide Commercial Building Energy Consumption Survey (CBECS).   Data from CBECS provides the underpinning for EPA’s ENERGY STAR scores.  (See Roundtable Weekly  energy policy story above)
  • In a July 18 Senate news release , 15 business and energy efficiency sector leaders expressed support for the latest Portman-Shaheen bill – including DeBoer and Henry H. Chamberlain, President and CEO, Building Owners and Managers Association (BOMA) International.
  • DeBoer stated in the Senate news release, “The [ESIC Act] is exactly the kind of smart, forward-looking policy that will help building owners respond to our modern, evolving economy.  The needs of business tenants have changed dramatically since the turn of the century to power the data centers, IT, and communications systems upon which our workforce depends.  Building owners are meeting their tenants’ 24/7 energy demands while constructing and managing their assets more efficiently – and reducing their carbon footprints.”
  • During the July 17 news conference, Sen. Portman added that the bill would save consumers $13 billion a year – the equivalent in emissions savings of taking 11 million cars off the road within 15 years. (Video of press event, July 17)

In a positive sign, a swath of energy efficiency bills are moving through both the Senate and House, indicating that energy policy could pass in a divided Congress.  ( The Washington Examiner , July 18) 

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House Committee Passes Bill Extending National Flood Insurance Program for Five Years

Posted on by Trey Jackson

The House Financial Services Committee on June 12 unanimously approved legislation that would reauthorize the National Flood Insurance Program (NFIP) for five years; spur the availability of private flood insurance; reduce costs for lower-income policyholders; and require updated flood zone maps for coverage.  (Wall Street Journal, June 12).  Next, the House of Representatives will consider the measure although the timing of a possible vote is not clear. ( Section-by-Section Committee Bill Summary )    

The NFIP would be reformed and reauthorized for five years under H.R. 3167.

  • The NFIP has operated under a series of temporary extensions since 2017.  On June 6, President Trump signed a disaster relief bill that extended the program until Sept. 30, the end of the fiscal year.  
  • Following negotiations between Committee Chairwoman  Maxine Waters  (D-CA) and Ranking Member Patrick McHenry (R-NC), the House panel approved the flood insurance reauthorization bill ( H.R. 3167 ). (House Financial Services Committee News Releases,  June 5   and  June 10 ) 
  • “The ranking member and I are convinced we can do a lot better than short-term extensions,” Waters said. “So, we are very pleased we put forth a bill today that is supported by both sides.” (CQ, June 12) 
  • The Real Estate Roundtable and 14 other industry groups urged Congress in a  June 12, 2017 comment letter  to reauthorize and reform the NFIP to help protect the nation’s commercial and multifamily business-owners, their properties, residents and the jobs they create from the financial perils of flooding. 
  • Under the current NFIP, commercial property flood insurance limits are very 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. A niche market of carriers typically provides this type of excess coverage. The Roundtable and its coalition partners support NFIP reauthorization with the inclusion of provisions that permit the “commercial exemption.” 
  • The Roundtable has long advocated for a voluntary exemption for mandatory NFIP coverage if commercial property owners have adequate flood coverage.
  • Sec. 402 of H.R. 3167 – Optional Coverage for Umbrella Policies – addresses commercial properties. 
  • John Smaby, President of the National Association of Realtors, commented on the importance of the legislation: “… including policies that address mapping, mitigation and private flood insurance, and we look forward to move responsible NFIP reforms through the House and Senate in the coming weeks” (NAR, June 13)

    The Roundtable will continue to work with lawmakers and our coalition partners to assist with NFIP reforms and a long-term reauthorization that help protect the nation’s commercial and multifamily business-owners, their properties and residents.

    House Committee Passes Beneficial Ownership Bill; Senate Hearing on June 20

    Posted on by Trey Jackson

    The House Financial Services Committee this week passed the  Corporate Transparency Act of 2019  ( H.R. 2513), which would require corporations and limited liability companies (LLCs) to report their beneficial owners to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).  The bill  – introduced by Reps. Carolyn Maloney (D-NY) and Peter King (R-NY)  – would shift the FinCEN reporting requirements from banks to the business community, requiring every business with fewer than 20 employees to register their beneficial owners with FinCEN . ( Roundtable Weekly , May 24)

    The  House Financial Services Committee this week passed the Corporate Transparency Act of 2019 ( H.R. 2513 ), which would require corporations and limited liability companies (LLCs) to report their beneficial owners to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

    • H.R. 2513 would also mandate that businesses update beneficial ownership information with any changes (home or business address, driver’s license change, change in ownership) within 60 days, and annually for the life of the business.  Failure to comply with these reporting requirements would be a federal crime with civil penalties of up to $10,000 and criminal penalties of up to three years in prison.  
    • A coalition that includes The Real Estate Roundtable sent a letter June 10 to the committee’s leadership opposing the Maloney-King bill.  “This legislation would impose burdensome, duplicative reporting burdens on approximately 4.9 million small businesses in the United States and threatens the privacy of law abiding, legitimate small business owners,” the letter states. 
    • The coalition emphasizes that it supports the overall goal of preventing wrongdoers from exploiting United States corporations and LLCs for criminal gain.  Yet the coalition letter details significant problems with H.R. 2513. 
    • One major challenge is that the legislation would shift reporting requirements from large banks-those best equipped to handle the reporting requirements-to millions of small businesses-those least equipped to handle the reporting requirements. 
    • The coalition also notes the bill presents privacy, data breach and cybersecurity risks for millions of small businesses in the United States. 
    • On May 9, the House Financial Services Committee unanimously approved legislation entitled the “Coordinating Oversight, Upgrading and Innovating Technology, and Examiner Reform Act” or the “COUNTER Act.”  The bill (H.R. 2514) would require financial institutions to determine the beneficial owners involved in certain commercial real estate transactions – similar to a FinCEN Geographic Targeting Order requirement affecting residential purchases. (CQ, May 9 and (Roundtable Weekly, May 24) 
    • The Roundtable also raised concerns in February about beneficial ownership reporting requirements and the potential burdens they place on the real estate industry. (Coalition letter – Feb. 6, 2018).   

    The Roundtable will continue to work with policymakers to stake out a balanced position on the issue that would inhibit illicit money laundering activity but does not place unnecessary costs and legal burdens on the real estate industry. 

    House Tax Writers Air Priorities, Address Technical Correction for Qualified Improvement Property Provision

    Posted on by Trey Jackson

    The House Ways and Means Committee on June 4 held a Members’ Day Hearing to address tax legislative priorities for the remainder of the year – including technical corrections to the Tax Cuts and Jobs Act (TCJA) that would correct a drafting error affecting qualified improvement property (QIP).  Numerous other tax priorities are also expected to crowd the congressional agenda, including expired or expiring tax provisions; repeal of the state and local tax deduction cap; the national debt limit; and budget spending caps.

    The House Ways and Means Committee held a Members’ Day Hearing to address tax legislative priorities for the remainder of the year – including technical corrections to theTax Cuts and Jobs Act(TCJA) that would correct a drafting error affecting qualified improvement property (QIP).

    • A coalition of businesses and trade groups, including The Real Estate Roundtable, urged all members of Congress in April to cosponsor the Restoring Investment in Improvements Act (H.R. 1869 /  S. 803) – a bill that would correct the QIP drafting error.  The legislation would give qualified improvement property a 15-year depreciation period and restore its eligibility for accelerated bonus depreciation. (QIP Policy Comment Letter and Roundtable Weekly, April 26)
    • The QIP error has resulted in a significantly longer 39- or 40-year cost recovery period for interior improvements to nonresidential property, such as tenant build-outs.  The intent of Congress was to allow the immediate expensing of QIP – or provide a 20-year recovery period in the case of taxpayers electing out of new limitations on the deductibility of business interest.
    • During the hearing, Rep. Adrian Smith (R-NE) said that QIP should be addressed as soon as possible and technical corrections should reflect the intent of lawmakers.  Rep. Roger Marshall (R-KS) discussed how QIP’s 39 depreciation adversely impacts small businesses, suggesting it should be dropped to 15 years.  And Rep. Jackie Walorski (R-IN) emphasized the need for a QIP fix, advocating for H.R. 1869. 
    • Reps. Walorski and Jimmy Panetta (D-CA) introduced the Restoring Investment in Improvements Act on March 26. The Senate companion bill (S. 803) was introduced earlier that month by Sens. Pat Toomey (R-PA) and Doug Jones (D-AL).  (Roundtable Weekly, March 15) 

      Ways and Means Chairman Richard Neal (D-MA) will discuss tax policy with Roundtable members on June 11 during the organization’s Annual Meeting in Washington, DC.

    • Beth Bell, Democratic tax counsel for Ways and Means, acknowledged many committee members are interested in TCJA technical fixes, including QIP.  Yet she emphasized during a May 30 Federal Bar Association meeting, “I think we need to get through processing or considering what to do with an extenders package before we get to a technical corrections package.” (BGov, May 30)
    • In the Senate, Finance Committee Chairman Chuck Grassley (R-IA) and Ranking Member Ron Wyden (D-OR) last month announced the formation of several bipartisan taskforces to examine and help permanently resolve the fate of 42 expired and expiring tax provisions.  (Senate Finance Committee Announcement, May 16 and Roundtable Weekly, May 17)
    • A preliminary draft of House legislation obtained by Bloomberg Tax last week would pay for the extension of temporary tax provisions through 2019 by changing the expiration date of estate tax relief included in TCJA. 

    House Ways and Means Chairman Richard Neal (D-MA) will discuss tax policy with Roundtable members on June 11 during the organization’s Annual Meeting in Washington, DC.  QIP and tax extenders will be among several tax policy issues discussed in detail during The Roundtable’s Tax Policy Advisory Committee (TPAC) meeting on June 12.

    Real Estate Coalition Opposes FCC’s Notice That May Permit Broadband Equipment on Private Property Without Owner Consent

    Posted on by Trey Jackson

    Installation of certain communications equipment on leased property to enable expansion of wireless networks should not be allowed without owner consent.  That is the message submitted on June 3 to the Federal Communications Commission (FCC) by an industry coalition that includes The Real Estate Roundtable.  (Joint Industry Comments to FCC).

    The installation of certain communications equipment on leased property to enable expansion of wireless networks should not be allowed without owner consent.  (Joint Industry Comments to FCC, June 3)

    • The coalition’s comments come as the FCC considers whether to expand its interpretation of federal law regarding consumer home antennas, spurred by the development of 5G technology for the next generation of advanced communications equipment. 
    • Current FCC rules allow residential and commercial tenants to install in leased spaces certain types of “customer-end” antennas and satellite dishes known as Over-the-Air-Reception Devices (“OTARD”).  The current scope of the OTARD rules is designed to enable consumer choice for tenants to select the kinds of cable and broadband services they desire. 
    • The FCC’s Notice of Proposed Rulemaking (announced on March 22) suggests a regulatory expansion outside the existing scope of “customer-end” devices in leased residential apartments and indoor office spaces.  The agency’s proposal would confer a broad grant of rights on broadband providers to access rooftops and other common areas – without the building owner’s consent – for the dense deployment of “hub and relay” antennas and other fixed wireless devices attendant to 5G infrastructure. 
    • The real estate coalition believes new FCC rules are not necessary because apartment residents, commercial tenants, and other customers demand fast and reliable Internet service in the 21st century marketplace.  “[C]ompetitiveness … has driven property owners to ensure that broadband infrastructure is available in their communities and other buildings,” the industry’s comments state.  “This deployment has taken place without government mandates, and the Real Estate Associations strongly believe that government intervention is not needed.”   

      The Real Estate Associations’ opposition to the Over-the-Air-Reception Devices (“OTARD”) rule’s expansion is detailed in expansive comments. 

       

    • According to the coalition, property owners have invested in excess of half a billion dollars over the past decade – a low-ball estimate – of their own capital to deploy broadband infrastructure in their assets.  Additionally, a basic exercise of building management is to enter into mutually beneficial arrangements with broadband providers to provide tenants with Internet access.  Government intervention – and regulation of rooftops and other building spaces – is not necessary because the market is already functioning and thriving. 
    •  The real estate groups’ comments acknowledged that broadband deployment in the nation’s rural areas (81.7 percent coverage) lags considerably behind urban coverage (99 percent).  Strides need to be made to “close the gap between urban and rural deployment.  But we also think it is important to note that existing rates of deployment were achieved with cooperation of the real estate industry,” the groups explained to the FCC.         

    The Real Estate Associations’ opposition to the OTARD rule’s expansion is detailed in its expansive comments.  For more information, see the National Multifamily Housing Council’s resources on telecommunications issues.

    Treasury Releases Proposed Regulations on FIRPTA Foreign Pension Fund Exemption

    Posted on by Trey Jackson

    The Treasury Department yesterday issued proposed tax regulations clarifying the scope and operation of the foreign pension fund exemption from the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).  (Federal Register, June 7)  The proposed rules appear to be overwhelming positive and likely to resolve most, if not all, of foreign investors’ remaining concerns.

    The Treasury Department  issued proposed tax regulations clarifying the scope and operation of the foreign pension fund exemption from the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).  (Federal Register, June 7)  The proposed rules appear to be overwhelming positive and likely to resolve most, if not all, of foreign investors’ remaining concerns.

    • FIRPTA imposes U.S. capital gains tax on the sale of a U.S. repeal property interest by a foreign investor.  FIRPTA results in a discriminatory tax on foreign investment in US real estate and infrastructure that does not apply to any other asset class.  The FIRPTA regime is an anti-competitive outlier that deflects global capital to other markets.
    • With the strong support of The Real Estate Roundtable, Congress passed in 2015 the first major reforms to FIRPTA since its enactment in 1980.  The changes included a new exemption from FIRPTA for qualified foreign pensions funds and doubled the amount a foreign interest may invest in a U.S. publicly traded REIT.  (Roundtable Weekly, Dec. 18, 2015) 
    • After passage of the 2015 PATH Act, some questions remained regarding whether certain foreign entities and arrangements would qualify for the foreign pension fund exemption.  The Roundtable encouraged Congress to clarify that the foreign pension fund definition covers a number of number of different arrangements, including:  governmental, Social Security-type plans; plans established for the self-employed; multi-employer plans; plans sponsored by political subdivisions; and situations where an entity pools retirement assets from multiple pension plans.
    • In March 2016, the Joint Committee on Taxation provided support for a broad interpretation of the FIRPTA foreign pension fund exemption with its “Blue Book” on tax legislation enacted in 2015.  (Roundtable Weekly, March 18, 2016)  In March 2018, Congress passed FIRPTA technical corrections legislation codifying many of The Roundtable’s recommendations.  (Roundtable Weekly, Mar. 23, 2018; The Blue Slip, Mar. 2018)
    • The newly proposed regulations adopt a broad view on what constitutes a qualified foreign pension fund.  According to the regulations’ preamble, “[t]he Treasury Department and the IRS have determined that the purpose of section 897(l) is best served by permitting a broad range of structures to be eligible to be treated as a qualified foreign pension fund.”  This sentiment is then extended in the proposed rules to a wide range of pension arrangements, including multi-employer and government-sponsored public pension funds, as well as retirement funds organized by trade unions, professional associations, or similar groups. 
    • Additionally, the proposed regulations confirm that entities wholly owned by multiple foreign pension funds can qualify for the exemption.  Similarly, entities can qualify for the exemption indirectly through a chain of ownership.  These were important clarifications for common foreign pension fund structures.  

    Building on the success of the PATH Act reform, The Roundtable and other stakeholders are encouraging Members of Congress to repeal FIRPTA entirely by passing the bipartisan Invest in America Act sponsored by Representatives John Larson (D-CT) and Kenny Marchant (R-TX).  (Roundtable Weekly, Apr. 12, 2019)  FIRPTA will be one of several tax topics discussed during The Roundtable’s Annual Meeting on June 11 in Washington, DC and at the Tax Policy Advisory Committee meeting on June 12.

    Roundtable Urges Treasury to Clarify Tax Consequences of Transition Away from LIBOR as Reference Rate

    Posted on by Trey Jackson

    The Real Estate Roundtable yesterday asked the U.S. Treasury Department and IRS to reduce the risk of market disruption by clarifying the tax treatment of financial contracts that replace the expiring London Inter-bank Offered Rate (LIBOR) with a substitute reference rate.  Over $200 trillion of LIBOR contracts are outstanding, including roughly $1.3 trillion of commercial real estate debt. (Roundtable LIBOR letter, June 6)

    The Real Estate Roundtable yesterday asked the U.S. Treasury Department and IRS to reduce the risk of market disruption by clarifying the tax treatment of financial contracts that replace the expiring London Inter-bank Offered Rate (LIBOR) with a substitute reference rate. (Roundtable LIBOR letter, June 6). 
    • The United Kingdom’s Financial Conduct Authority (FCA), which regulates LIBOR, announced in 2017 that it is phasing out the global borrowing index by the end of 2021.  LIBOR will need to be replaced in both new agreements and innumerable existing legacy contracts.
    • Several factors may necessitate or accelerate parties’ adoption of alternative reference rates on existing contracts well before the end of 2021.  To facilitate the transition, the Federal Reserve Bank of New York in 2018 began publishing an alternative U.S. benchmark to work alongside LIBOR – the Secured Overnight Financing Rate (SOFR).  (See: A User’s Guide to SOFR  and SOFR: A Year in Review)
    • However, several issues may be contributing to the reluctance of market participants to use SOFR, including the absence of necessary internal infrastructure to support its accounting and trading, and the lack of tax guidance. 
    • Roundtable President and CEO Jeffrey DeBoer noted in the comment letter, “If the terms of a debt instrument are significantly modified, for Federal income tax purposes there is a deemed exchange of the old debt for a new (modified) debt instrument.”  Without relief, this deemed exchange could trigger the recognition of taxable gain or loss for the lender, or debt discharge income for the borrower.
    • “Moreover, the tax consequences of the deemed exchange can arise without generating actual cash to pay any ensuing tax liability,” wrote DeBoer. 

      Randal Quarles – the Fed’s vice chairman in charge of financial regulation – reiterated the urgency of moving forward on the transition to SOFR. 

    • The Roundtable’s June 6 comments recommend that a safe-harbor rule confirm that a replacement index or formula identified by regulators, broad industry groups, or similar objective sources-or by the parties themselves in good faith-is not considered an alteration or modification of the original instrument.  The Roundtable letter states, “Instead, the replacement should be treated for Federal tax purposes as a continuation of the instrument’s original terms.”
    • This week, Randal Quarles – the Fed’s vice chairman in charge of financial regulation – reiterated the urgency of moving forward on the transition to SOFR:  “I believe that the ARRC has chosen the most viable path forward and that most will benefit from following it, but regardless of how you choose to transition, beginning that transition now would be consistent with prudent risk management and the duty that you owe to your shareholders and clients …. With only two and a half years of further guaranteed stability for LIBOR, the transition should begin happening in earnest.”  (Bloomberg, June 3)
    • The Wall Street Journal reported last July that companies were adopting SOFR sparingly –  despite regulators urging banks and traders to stop launching new Libor-based contracts ahead of the 2021 deadline. (WSJ, July 12 and Roundtable Weekly, July 13, 2018) 

    The Roundtable letter was developed by a task force that included Tax Policy Advisory Committee (TPAC) Chairman Frank Creamer Jr., TPAC member Don Susswein, and chair of the Real Estate Capital Policy Advisory Committee (RECPAC) Working Group on LIBOR, Joseph Philip Forte.  On June 11, at The Roundtable’s Annual Meeting in Washington DC, Joseph Forte will lead a RECPAC discussion on real estate’s concerns with the LIBOR transition. 

    Senate Legislation Introduced to New CECL Accounting Standard Affecting Treatment of Expected Loan Losses

    Posted on by Trey Jackson

    Legislation introduced May 21 by Sen. Thom Tillis (R-N.C.) would delay implementation of the Current Expected Credit Losses (CECL) accounting standard, which will force banks to book losses on bad loans much faster.  (ABA Journal, May 22)

      Legislation introduced May 21 by Sen. Thom Tillis (R-N.C.) would delay implementation of the Current Expected Credit Losses (CECL) accounting standard, which will force banks to book losses on bad loans much faster.

    • The independent Financial Accounting Standards Board (FASB) is proceeding with its plan to implement CECL for publicly traded U.S. banks at the beginning of 2020 – and later for other financial institutions. (Roundtable Weekly, April 5)
    • FASB  Chairman Russell Golden reiterated the organization’s commitment to implementing CECL in an interview this week with Bloomberg Tax. “We think we need to continue to work with community banks to make sure that they understand what CECL is and what it’s not,” Golden said.  (BGov, May 22)
    • The new CECL model will require certain financial institutions to estimate the expected loss over the life of a loan – a significant change to the way banks calculate reserves on assets.  The regulatory change in how banks estimate loan and lease losses (ALLL) will require substantial changes in data analytics and financial methodologies. (Wall Street Journal, April 3)  The accounting rule change was issued by the FASB in June 2016 as a result of the 2008 financial crisis.
    • 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.  The new standard may cut into earnings and regulatory capital by forcing some banks to boost their loan-loss reserves.  (Roundtable Weekly, March 8)  
    • A business coalition that included The Real Estate Roundtable in March 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) plans to implement CECL.

    • Sen. Tillis’ bill (S. 1564) would require the Securities and Exchange Commission (SEC) and bank regulators to study CECL’s effect on the availability of credit and on bank capital before the new  accounting standard takes effect.
    • Fourteen Senators – seven Democrats and seven Republicans – on May 10 sent a letter to the Federal Reserve Board and the Federal Deposit Insurance Corp. requesting a delay of CECL until the regulators analyze how the new rules could impact lending.  Twenty five members of Congress on May 6 sent a letter to the SEC requesting a delay in implementation of the new FASB rule until the SEC studies it.

    At a House Financial Services Committee hearing May 22, Treasury Secretary Steven Mnuchin responded to a question about the ability of community banks to lend under  CECL.  “I share some of your concerns. This is an issue we continue to study,” Mnuchin said.  (BGov, May 22)

    Senate Hearing on Beneficial Ownership Follows House Committee Action Affecting Corporate Entity Transactions

    Posted on by Trey Jackson

    A Senate Banking Committee hearing this week on “Combating Illicit Financing by Anonymous Shell Companies Through the Collection of Beneficial Ownership Information” followed recent approval of legislation by the House Financial Services Committee that would affect beneficial ownership requirements for commercial real estate transactions.

    Senate Banking Chairman Mike Crapo (R-ID)  held a hearing this week on “Combating Illicit Financing by Anonymous Shell Companies Through the Collection of Beneficial Ownership Information.”

    • Senate Banking Chairman Mike Crapo (R-ID) said in his opening statement that the committee seeks solutions “… to deter money laundering and the financing of terrorism through the use of front companies, shell companies, shelf companies, opaque nominees, and other means to conceal and disguise the true beneficial owners of property and other assets.”
    • The Senate committee held a previous hearing on the subject last November.  Another hearing focusing on industry perspectives is expected in June.
    • Congressional consideration of the beneficial ownership issue comes after the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) amended the Bank Secrecy Act regulations in May 2018.  FinCEN added a Customer Due Diligence rule requiring financial institutions to collect the beneficial ownership information of legal entities with which they conduct commerce. (FinCEN news release, May 2018)
    • In the House of Representatives, the Financial Services Committee considered legislation (H.R. 2514) affecting beneficial ownership during a May 8 mark-up.  (Committee Memorandum, May 3)
    • The committee approved legislation introduced by Reps. Emanuel Cleaver (D-MO) and Steve Stivers (R-OH) – introduced the “Coordinating Oversight, Upgrading and Innovating Technology, and Examiner Reform Act” or the “COUNTER Act” by a vote of 55-0.   The bill would require financial institutions to determine the beneficial owners involved in certain commercial real estate transactions – similar to a FinCEN Geographic Targeting Order (GTO) requirement affecting certain residential purchases. (CQ, May 9) 

      Congressional consideration of the beneficial ownership issue comes after the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) amended the Bank Secrecy Act regulations in May 2018. 
    • FinCEN’s GTO issued in November 2018 requires U.S. title insurance companies to identify the natural persons behind shell companies used in all-cash purchases of residential real estate.  The purchase amount threshold, which previously varied by city, is now set at $300,000 for each covered metropolitan area.  The GTO also covers certain counties within the following major U.S. metropolitan areas: Boston; Chicago; Dallas-Fort Worth; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle. (Wall Street Journal – Nov. 15, 2018) 
    • Another House Financials Services Committee proposal introduced by Reps. Carolyn Maloney (D-NY) and Peter King (R-NY) was postponed during the May 8 mark-up, yet is expected to be considered in June.  Their Corporate Transparency Act of 2019 ( H.R. 2513) would shift FinCEN reporting requirements on beneficial ownership from banks to the business community.  (CQ, May 9 and May 21) 
    • The Maloney-King legislation would require every business with fewer than 20 employees to register their beneficial owners with FinCEN.  Businesses would also need to update that registration with any changes (home or business address, driver’s license change, change in ownership) within 60 days, and annually for the life of the business.  Failure to do so would result in federal criminal penalties.  However, the bill fails to address the required information and the process for compliance.

    The Roundtable has raised concerns about beneficial ownership reporting requirements and the potential burdens they place on the real estate industry. (Coalition letter – Feb. 6, 2018).  The Roundtable will continue to work with policymakers to stake out a balanced position on the issue that would inhibit illicit money laundering activity but does not place unnecessary costs and legal burdens on the real estate industry.