A massive $2.2 trillion emergency coronavirus relief bill was signed into law today by President Trump shortly after passage by the House of Representatives, following unanimous approval on March 25 by the Senate.  The historic legislative package—the Coronavirus Aid, Relief, and Economic Security (CARES) Act—comes as the United States registered the largest amount of coronavirus cases in the world and a record 3.3 million jobless claims in one week. (White House video of signing and Axios March 27, Wall Street Journal  March 27 and New York Times  March 26)

• The CARES Act—the largest rescue package in U.S. history—includes $100 billion for hospitals and the medical workforce to obtain products, medicine, and equipment needed to meet the capacity surge in patients throughout the country. (Bill text here, summary from Senate Appropriations Committee Republicans here, and summary from Senate Appropriations Democrats here.)

• The 883-page bill includes direct financial assistance to a wide swath of Americans and significantly expands unemployment assistance. The legislation also provides loans, grants and other financial assistance to state and local governments, as well as to and all types and sizes of U.S. businesses.

• For the business community, The CARES ACT establishes a number of assistance programs, largely based on how many workers are employed by a given business concern. The Roundtable’s CARES Act webpage provides an analysis of the bill.  Separate Roundtable documents below summarize the provisions that target:

• Independent contractors, sole proprietors, and businesses with 500 employees or less
  
  
• Mid-sized businesses with 501 to 10,000 employees  

• Businesses with any number of employees over 500
  
  
• Tax Considerations 

• The CARES Act authorizes $500 billion for direct loans and guarantees, including $454 billion for the Federal Reserve to support its lending facilities and $29 billion for direct lending to passenger and cargo air carriers.

• An additional $367 billion is available to assist small businesses through the Small Business Administration (SBA). The Act also contains a number of provisions aimed at granting temporary regulatory relief.  Despite the enormity of the assistance provided by the CARES Act, additional financial assistance legislation is expected if the duration of the national emergency continues for a greater period of time.  (Senate Republican Conference Summary, March 27)

CARES Act Support for Financial Institutions

The CARES Act also includes a number of other provisions designed to support financial institutions during the COVID-19 pandemic.

• It authorizes the Federal Deposit Insurance Corporation to further guarantee obligations of solvent insured depository institutions and depository institution holding companies – provided that any such guarantee must terminate no later than December 31, 2020. The legislation does not set the maximum amount to be guaranteed. The Act also temporarily authorizes the Office of the Comptroller of the Currency to exempt any transaction from its lending limits, if the exemption is in the public interest.
  
  
• The legislation also allows a financial institution to suspend, during a covered period, requirements under U.S. Generally Accepted Accounting Principles for loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a troubled debt restructuring – and the federal banking agencies must defer to the financial institution's determination. The covered period begins on March 1, 2020, and ends the earlier of December 31, 2020 – or 60 days after the date on which the national emergency declaration related to coronavirus terminates.
  
  
• The legislation also permits an insured depository institution, bank holding company or any affiliate thereof to temporarily delay measuring credit losses on financial instruments using the new Current Expected Credit Losses (CECL) accounting standard until the earlier of December 31, 2020, or the date on which the coronavirus-related national emergency declaration terminates.
  
  
• Finally, in addition to providing financial support for the Federal Reserve's lending programs, as discussed above, the legislation would temporarily suspend the statutory limitation on the use of the Treasury Department's Exchange Stabilization Fund for guarantee programs for the U.S. money market mutual fund industry. Any such guarantee must terminate not later than December 31, 2020.

Industry Briefings and What’s Next

The ongoing legislative and regulatory efforts to combat the COVID-19 outbreak were the subject of a March 23 Real Estate Roundtable “Townhall” conference call moderated by Roundtable President and CEO Jeffrey DeBoer.  Approximately 230 Roundtable members participated in the conference call, which is available here.

• The Roundtable’s Homeland Security Task Force held a conference call on March 26, featuring Dr. Jay Butler, Deputy Director for Infectious Diseases (DDID) with the Centers for Disease Control and Prevention (CDC), who addressed the U.S. public health agencies' efforts to confront the crisis.

• Future Roundtable Townhalls may be offered as policy responses evolve with the fluid developments of the Coronavirus pandemic.

• Next week, a Marcus & Millichap Webcast on “Getting Through the Global Health Crisis Together” will cover an updated economic assessment; government initiatives and potential impact; state of real estate financing and transaction markets; and challenges by property type. Register here for the webcast, which will be held on Thursday, April 2 at 4:00pm Eastern /1:00pm Pacific.
  
  
• Congressional leaders have already mentioned the possibility of a fourth coronavirus relief measure.  House Speaker Nancy Pelosi (D-CA) on Bloomberg TV yesterday said that subsequent relief bills may “lean toward recovery” and include funds for frontline health-care workers, along with support for COVID-19 health-care services that go beyond testing.  She added that a future legislative package would focus on job creation measures and U.S. infrastructure building. 

• Vice President Mike Pence yesterday said the administration was open to a fourth bill during a White House press conference. “I think the secretary of the Treasury’s already indicated and congressional leadership has already indicated a willingness to remain open to that. Already we’re hearing from some governors about the need for additional resources, and we will evaluate those very carefully,” Pence said.  (BGov, March 27)

In the Senate, another Coronavirus relief bill likely will have to wait until Senators return from recess on April 20.

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The Federal Reserve took unprecedented actions this week to aggressively support markets in an attempt to contain the economic damage of the coronavirus pandemic – announcing it is “committed to using its full range of tools to support households, businesses and the U.S. economy overall in this challenging time.”  (New York Times, March 23)

• After the Fed last week cut the federal fund rate to zero and re-started its Quantitative Easing program, it established several new credit facilities this week aimed at injecting a massive liquidity flow to various sectors of the economy.  (Roundtable Weekly, March 20)
  
  
• According to a March 23 Fed statement, the Federal Open Market Committee (FOMC) “will purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.  In addition, the FOMC will include purchases of agency commercial mortgage-backed securities in its agency mortgage-backed security purchases.”
  
  
• Loans, loan guarantees, and other investments will be made available by the Fed through its recently established credit facilities:

1. Commercial Paper Funding Facility (CPFF)
2. Primary Dealer Credit Facility(PDCF)
3. Money Market Mutual Fund Liquidity Facility(MMLF)
4. Primary Market Corporate Credit Facility(PMCCF)
5. Secondary Market Corporate Credit Facility(SMCCF)
6. Term Asset-Backed Securities Loan Facility(TALF) 
7. Main Street Business Lending Program (pending establishment)

The Fed’s new credit facilities will be backed by the Treasury Department’s Exchange Stabilization Fund, which was allocated $454 billion in the congressional coronavirus economic rescue package signed by President Trump today.

TALF, Private-Label CMBS, and Mortgage Servicers Task Force

The Fed’s Term Asset-Backed Securities Loan Facility (TALF) credit facility, previously used during the 2008 financial crisis, was relaunched on March 23 to “enable the issuance of asset-backed securities (ABS) backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets.”  (Fed news release, March 23)

• This week also saw two key actions affecting Agency commercial mortgage-backed securities (CMBS) by the Fed, Treasury and the Federal Housing Finance Agency (FHFA), which regulates Fannie and Freddie.  Agency CMBS are securities backed by mortgages on commercial and multifamily properties guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac.
  
  
• First, the Fed announced it extended its support of financial markets to include agency CMBS, retaining BlackRock Financial Markets Advisory to begin purchasing securities today.
  
  
• Second, FHFA authorized Fannie Mae and Freddie Mac to provide agency CMBS investors with short-term financing of their positions, providing liquidity to these investors.
  
  
• While the TALF now includes Agency CMBS, non-agency CMBS and other certain other commercial assets are currently excluded.  (GlobeSt. Fed Announces Unlimited Bond Purchases, Will Buy Apartment CMBS, March 23)
  
  
• An industry coalition, including The Real Estate Roundtable, on March 24 urged the Federal Reserve, Treasury, and Federal Housing Finance Agency to expand the TALF to include non-agency CMBS – including legacy private-label conduit and single-asset single borrower (SASB) assets. The coalition states the inclusion of private-label assets would stabilize asset prices and shore up the balance sheets of market participants.  (Joint Industry letter, March 24)
  
  
• The letter notes, “CMBS is a visible proxy for real estate loans, where banks, life companies, and other lenders have significant exposure.”  The coalition letter also explains that investors in both Agency and private-label CMBS include public pension funds for many employees at the frontlines of the crisis (hospitals, firefighters, police, and teachers).
  
  
• Separately, Treasury Secretary Steven Mnuchin on March 26 said he has formed a task force of U.S. financial regulators on how to respond to a severe liquidity shortfall facing mortgage service firms, who collect monthly payments from borrowers and facilitate payments to mortgage bond investors.  (GlobeSt, March 27)
  
  
• Most mortgage servicers are nonbank firms that do not currently have access to emergency lending from the Federal Reserve.  Despite an anticipated wave of forbearance requests from borrowers, mortgage servicers remain obligated to advance funds to investors – the owners of most of the nation’s $11 trillion residential mortgages. The Mortgage Bankers Association estimates that if 25% of borrowers ask to postpone their payments for six months, the cost could exceed $75 billion.  (Bloomberg Law, March 26) 

Secretary Mnuchin has asked the task force of the Financial Stability Oversight Council, which also includes the heads of the Federal Reserve and Securities and Exchange Commission, for recommendations by March 30. (Wall Street Journal, March 26)

Relief from Troubled Debt Restructuring (TDR) Label

The Fed joined the Federal Deposit Insurance Corporation (FDIC) and other banking regulators in a March 22 Interagency Statement that encourages banks to avoid automatically categorizing short-term loan modifications linked to the COVID-19 crisis as a Troubled Debt Restructuring (TDR).  The joint statement also encourages borrowers experiencing cash flow problems due to the pandemic to reach out to any FDIC-insured lenders about modifying their loans, without adverse consequences to the bank or the borrower that traditionally come with the TDR label.

• According to the Statement, “Short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs.  This includes short-term — for example, six months — modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.”
  
  
• A separate coalition that also includes The Real Estate Roundtable wrote to the National Association of Insurance Commissioners on March 25 to request clarifying guidance that would relieve mortgage loan modifications linked to COVID-19 from the classification as a TDR.
  
  
• The letter informed NAIC, “Servicers for mortgages held by life insurance companies are fielding pressing calls from borrowers seeking temporary relief due to the impact of COVID-19.” 
  
  
• The coalition emphasizes that clarifying guidance from NAIC will “better enable life insurance companies to work prudently and swiftly with borrowers; mitigate COVID-19 impacts on borrowers, life insurance companies and the nation’s economy; and ultimately lead to improved loan performance and reduced credit risk.” (View Letter)
  
  
• Language that supports the efforts of regulators and lenders to work on loan modifications with borrowers affected by the pandemic is also included in the $2 trillion dollar coronavirus response legislation.
  
  
• Real Estate Roundtable Jeffrey DeBoer commented on how lenders may react to in an article yesterday in GlobeSt entitled, “Where CRE Liquidity Stands Today.”  
  
  
• “Congress can’t tell them what to do, but the FDIC has issued a statement giving banks more leeway in modifying loans without having to label the loan as a TDR. There are efforts underway to get the NAIC to issue a similar statement for life companies. All of this is positive,” DeBoer said. “And in turn, we are trying to make sure when property owners try to meet their obligation their lenders will allow flexibility.”
  
  
• On March 24, The Real Estate Roundtable called on all owners and operators of business and residential rental real estate to voluntarily, proactively work in a positive and constructive manner with their COVID-19 impacted tenants respecting current rent obligations.  (Roundtable news release, March 24)

As fast-moving coronavirus developments continue to roil markets, The Roundtable’s Real Estate Capital and Credit Policy Advisory Committee (RECPAC) will continue to provide constructive recommendations as The Roundtable continues to communicate the industry’s ongoing concerns about the crisis to policymakers and regulators.

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