Tag: The Fed

Roundtable Urges Federal Bank Regulators to Reestablish CRE Troubled Debt Restructuring Program

Posted on by Trey Jackson

Real Estate Roundable President and CEO Jeffrey DeBoer

The Real Estate Roundtable today requested federal bank regulators to reestablish immediately a troubled debt restructuring (TDR) program for commercial real estate that would give financial institutions increased flexibility to refinance loans with borrowers and lenders. (Roundtable letter to regulators, March 17) 

Roundtable Liquidity Concerns 

  • The letter from Real Estate Roundtable President and CEO Jeffrey DeBoer, above, cites rising interest rates, a steady increase in looming debt maturities, remote work’s negative influence on office space demand, and heightened uncertainty from this week’s bank turmoil as contributing factors that have exerted pressure on liquidity and decreased refinancing options for CRE assets.
  • DeBoer added, “Regulators have taken significant action four times since 2009 to assist commercial real estate loan modifications during periods of economic instability—and now is the time to take action again. Our request is for immediate action, given increasing credit and liquidity constraints. Time will allow markets still struggling with post pandemic uncertainties to stabilize.”
  • Minutes from last month’s Fed Open Market Committee meeting confirmed economic pressures on CRE assets. The FOMC minutes state, “In particular, the staff noted that measures of valuations in both residential and commercial property markets remained high, and that the potential for large declines in property prices remained greater than usual.” 

Fed Intervention The Federal Reserve in Washington, DC

  • The Fed is reviewing tougher capital and liquidity requirements for midsize banks, along with more stringent annual stress tests to assess their ability to weather recessionary pressures. New rules may target mid-sized banks with assets totaling between $100 billion to $250 billion. (Wall Street Journal | Financial Times | Reuters, March 14)
  • The Fed this week acted to quell turmoil caused by the collapse of three mid-sized banks, including expanding its balance sheet to nearly $300 billion after months of shrinking it through a quantitative easing program. (Axios, March 17)
  • The Fed announced on Sunday night, March 12, the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions that pledge U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. The BTFP is backstopped up to $25 billion from the Exchange Stabilization Fund. (Fed announcement, March 12)
  • Additionally, a Fed report released yesterday showed a huge outflow of $153 billion in loans at the Fed’s “discount window,” a funding resource that helps depository institutions manage their liquidity risks. The previous record for discount window borrowing was $111 billion during the 2008 financial crisis.  

Remote Work 

empty office remote work

  • DeBoer’s letter to the Agencies also emphasized the lingering effect of the global pandemic on hospitality, senior housing, retail (including the enclosed shopping center market), office and other property sectors.
  • The ongoing pressure of remote work arrangements has altered the current demand for office space nationwide, created significant concerns about the future of office use, and the cast doubt on the future of American cities that heavily depend on property tax revenue to fund needed community services. (Roundtable letter, March 17)
  • The wide adoption of remote work may have been a factor in Silicon Valley Bank’s collapse, according to the bank’s 2023 annual report filed in February. SVB acknowledged in a filing with the Securities and Exchange Commission that it faced “risks from a prolonged work-from-home arrangement as well as our implementation of a broader plan to return to the office.” (Fortune, March 16 and Axios, March 17) 

The Roundtable’s letter concludes by urging the federal regulators to “take action immediately to provide increased latitude for financing institutions to work constructively with borrowers. Such action will avert what we believe would be an unnecessary crisis.” 

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Commercial Real Estate a Focus of Fed Loan Officer Survey and Bank Stress Test Plans

Posted on by Trey Jackson

Federal Reserve sunsetThis week, commercial real estate was a prominent focus of the Federal Reserve’s quarterly senior loan officer opinion survey and announcement about the hypothetical scenarios that 23 banks will be stress-tested against in 2023. (Fed Survey, Feb. 6 and Stress Test, Feb. 9)

2022 Survey & 2023 Stress Test

  • On Monday, the Fed released its January 2023 Senior Loan Officer Opinion Survey on Bank Lending Practices, which reported tighter standards and weaker demand for all commercial real estate loan categories for the fourth quarter of 2022. The survey also reported that for 2023, banks expect lending standards will tighten, demand will weaken, and loan quality will deteriorate across all loan types. (Reuters, Feb. 6 | American Banker, Feb. 7 | GlobeSt, Feb. 9)
  • On Thursday, the Fed released the hypothetical scenarios for its 2023 annual stress test, which measures and evaluates the ability of large banks to continue lending to businesses and households during a recession or weakened financial conditions.
  • The scenarios will include a severe global recession, heightened stress in both commercial and residential real estate markets, and a new, unspecified “exploratory market shock.” The new component will not count against capital requirements affected by the tests, the Fed said. (BGov, Feb. 10)
  • The Fed detailed additional key features of the “severely adverse scenario” by instructing banks, “Declines in commercial real estate prices should be assumed to be concentrated in properties most at risk of a sustained drop in income and asset values: offices that may be affected by remote work or hospitality sectors that continue to be affected by reduced business travel. Declines in U.S. house prices and U.S. commercial real estate prices should also be assumed to be representative of … those that experienced rapid price gains before the pandemic and were significantly affected by the event.” (pdf of instructions for 2023 Federal Reserve Stress Test Scenarios)

Delinquency Rate & CRE Outlook

Cutting-Through-Uncertainty-2023-webcast-image

  • Trepp’s CMBS Research reported this week that that the overall US CMBS special servicing rate dropped in January 2023 six basis points to 5.11%—down for the second month in a row after four consecutive increases from August to November. By comparison, the rate one year ago was 6.33% and six months registered at 4.79%. (Trepp, Feb. 8)
  • The office sector saw a 16-basis point increase in the special servicing rate in January, and it led all new special servicing transfers.
  • An industry panel discussion on Feb. 6 focused on Cutting Through Uncertainty: 2023 Economic & CRE Outlook. The on-demand webinar is moderated by Roundtable Member Hessam Nadji (President & CEO, Marcus & Millichap), who leads a discussion with Moody’s Analytics Chief Economist Mark Zandy, along with Roundtable Members Wendy Mann (CEO, CREW Network), Tom McGee (President and CEO, ICSC) and Marc Selvitelli (President & CEO, NAIOP).

This month, The Real Estate Roundtable will release its Q1 Economic Sentiment Survey, which will report on how leading CRE executives view current market conditions and their expectations for the year.

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Fed Adopts SOFR as Fallback Benchmark Rate to Replace LIBOR on Certain Legacy Contracts

Posted on by Trey Jackson

Federal ReserveThe Federal Reserve Board on Dec. 16 adopted SOFR (Secured Overnight Financing Rate) as the fallback benchmark rate to replace LIBOR (London Interbank Offered Rate) in certain financial contracts after the use of LIBOR expires on June 30, 2023. (Federal Register notice and Bloomberg Law, Dec. 16)

LIBOR to SOFR

  • LIBOR was the dominant reference rate used in recent decades for financial contracts—including commercial real estate debt, mortgages, student loans and derivatives—worth an estimated $223 trillion. (Roundtable Weekly, Dec. 10, 2021.)
  • The Fed’s action this month implements a final rule from the Adjustable Interest Rate (LIBOR) Act (H.R. 4616)—passed by Congress in March to provide a uniform, nationwide solution for so-called tough legacy contracts that do not have clear and practicable provisions for replacing LIBOR. (Roundtable Weekly, March 11, 2022)
  • The Real Estate Roundtable and 17 national trade groups submitted letters in 2021 on April 14 and July 27 to policymakers in support of measures to address “tough legacy” LIBOR-based contract issues. (Roundtable Weekly, Dec. 10, 2021)

Final LIBOR Rule

Libor transition to SOFR image

  • The final rule identifies replacement benchmark rates based on SOFR to replace overnight, one-month, three-month, six-month, and 12-month LIBOR in contracts subject to the LIBOR Act. These contracts include U.S. contracts that do not mature before LIBOR ends and that lack adequate “fallback” provisions that would replace LIBOR with a practicable replacement benchmark rate. (Fed Reserve Board’s memo, Dec. 2 and Fed news release, Dec. 16)
  • The final rule also restates safe harbor protections contained in the LIBOR Act for market participants who need to switch existing LIBOR-referencing financial contracts to a replacement benchmark for debt instruments before the replacement date on June 30, 2023. (Federal Register notice on LIBOR)

The LIBOR transition will be among the issues discussed during The Roundtable’s Real Estate Capital Policy Advisory Committee’s (RECPAC) next meeting on Jan. 24 in Washington, DC during The Roundtable’s State of the Industry Meeting.

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Fed Reports U.S. Financial Stability Risks Include Inflation, Asset Valuation Pressures, and Cyber Attacks

Posted on by Trey Jackson

The Federal Reserve in Washington, DC

Near-term risks to the U.S. economy and financial system include inflation, asset valuation pressures and cyber attacks, according to the Federal Reserve’s semiannual Financial Stability Report released this month. (Wall Street Journal, Nov. 4)

Stability Threats

Fed Report Risks Nov 2022

  • “Higher-than-expected interest rates could lead to increased volatility in financial markets, stresses to market liquidity, and declines in asset prices, including prices of both commercial and residential real estate properties,” the central bank states in its report.
  • The report warns that such effects could cause losses at a range of financial intermediaries, reducing their access to capital and raising their funding costs—and pose adverse consequences for asset prices, credit availability, and the economy.
  • Federal Reserve Vice Chair Lael Brainard stated the American financial system has held up through the turbulent developments of the past year. She said, “Household and business indebtedness has remained generally stable, and on aggregate households and businesses have maintained the ability to cover debt servicing, despite rising interest rates.”

Cybersecurity Concerns

Financial Risks Chart - Federal Reserve

  • Respondents to the central bank’s survey on stability threats also noted continuing concerns about the Russian invasion of Ukraine, high oil prices and a potential conflict between China and Taiwan. Cyber attacks pose an additional risk that “could come as retaliation for sanctions imposed on Russia,” according to the Fed’s report.
  • The Roundtable’s Homeland Security Task Force will hold a conference call on Monday, November 28 that will focus on a new Cyber Risk Summary briefing on Commercial Facilities—includes Commercial Real Estate—from the Cybersecurity and Infrastructure Security Agency (CISA). [To register, contact Andy Jabbour of the Real Estate Information and Sharing Network (RE-ISAC)]
  • U.S. financial institutions processed approximately $1.2 billion in ransomware-related payments last year, a nearly 200 percent increase compared to 2020, according to the Treasury Department’s Financial Crimes Enforcement Network. (FinCEN report, Nov. 1)

Cybersecurity issues and CRE will be discussed during the next HSTF meeting on Jan. 25, 2023—held in conjunction with The Roundtable’s State of the Industry meeting. (Roundtable Weekly, Oct. 7)

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Fed Seeks Comment on CRE Loan Accommodations and Workouts Policy Statement

Posted on by Trey Jackson

Federal Reserve Building

Federal regulators are inviting comment on an updated policy statement that addresses: (1) short-term commercial real estate loan accommodations; (2) revisions and additions to examples of CRE loan workouts; and (3) accounting developments for estimating loan losses. (Federal Register, Sept. 15 and GlobeSt, Sept. 19)

Why It Matters

  • The Fed’s proposal would build on existing guidance around the need for financial institutions to work prudently and constructively with creditworthy borrowers during times of financial stress.

  • The “Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts” was developed jointly by the Federal Reserve’s Board of Governors, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA) in consultation with state bank and credit union regulators.
  • The Fed Board aims to update and expand the 2009 federal regulators’ statement on prudent commercial real estate loan workouts for CRE borrowers experiencing diminished operating cash flows, depreciated collateral values, or prolonged delays in selling or renting commercial properties. (FFIEC news release, Oct. 30)

Update & Expand

Federal Reserve

  • This month’s proposed Fed policy reaffirms two key principles from the 2009 statement:
    • Financial institutions that implement prudent CRE loan accommodation and workout arrangements—after performing a comprehensive review of a borrower’s financial condition—will not be subject to criticism for engaging in these efforts, even if these arrangements result in modified loans that have weaknesses that result in adverse credit classification.
    • Modified loans to borrowers—who have the ability to repay their debts according to reasonable terms—will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance.
  • If finalized, the proposed statement would supersede the 2009 statement for all supervised financial institutions. The proposal would also revise language to incorporate current industry terminology and include updated references to other federal supervisory guidance.

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) plans to work on comments, which are due by November 14, 2022.

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Increased Pace of Fed’s Quantitative Tightening Raises Concerns About Liquidity Stress in Banking System

Posted on by Trey Jackson

The Federal Reserve

As the Federal Reserve accelerates the unwinding of its nearly $9 trillion balance sheet this month, there is growing concern about the impact that quantitative tightening (QT) may have on credit market liquidity and the overall economy. (Financial Times, Sept 14 and Reuters, Sept. 15)

QT & Liquidity

  • The Fed launched its QT initiative on June 1 with initial caps set for $30 billion in U.S. Treasuries and $17.5 billion in agency mortgage-backed securities—but scheduled the caps to increase this week to $60 billion and $35 billion, respectively. (Federal Reserve, Plans for Reducing the Size of the Federal Reserve’s Balance Sheet, May 4)
  • The increased QT pace of up to $95 billion per month has sparked concerns about how contracting liquidity conditions could impact the overall economy and whether the Fed may seek an early exit from QT. (Financial Review, Sept. 14 and BGov, Sept. 12)
  • The QT increase prompted a Bank of America warning to clients this month that strain on bond market liquidity is “one of the greatest threats to global financial stability today, potentially worse than the housing bubble of 2004-2007.” (MarketWatch, Sept 15 and New York Times, Sept. 11)
  • The Fed’s expected policy interest rate increase by 75 to 100 basis points next week would keep borrowing costs elevated as the central bank’s scheduled QT effort increases.

Soft Landing Challenge

Roundtable Board Member Barry Sternlicht

  • The challenge for the Fed is whether it can achieve a “soft landing”—reducing the inflation rate while avoiding a recession—while the U.S. economy faces volatile inflationary factors from the war in Ukraine, high energy costs, and supply chain disruptions.
  • Rising interest rates and various market conditions around the world could lead to a global recession next year, resulting in “lasting harm” to emerging and developing economies, according to an analysis released today by the World Bank. (Financial Times and UPI, Sept. 16)
  • “Recent tightening of monetary and fiscal policies will likely prove helpful in reducing inflation,” said Ayhan Kose, the World Bank’s Acting Vice President for Equitable Growth, Finance, and Institutions. “But because they are highly synchronous across countries, they could be mutually compounding in tightening financial conditions and steepening the global growth slowdown.” (World Bank news release and analysis, Sept. 16)
  • Roundtable Board Member Barry Sternlicht (Chairman and CEO, Starwood Capital Group), above, appeared on CNBC’s Squawk Box yesterday to discuss the Fed, inflation, and the U.S. economy. Sternlicht stated the economy is “braking hard” and that prices will begin to decrease after recent Fed measures.

The Roundtable’s Fall Meeting next week in Washington will include a discussion on the Fed’s actions and economic conditions with Dr. Austan Goolsbee, former White House Chairman of the Council of Economic Advisers from 2010-2011 and a member of President Barack Obama’s cabinet.

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Roundtable-Supported Fed Liquidity Facility Bolstered CRE Finance During Pandemic

Posted on by Trey Jackson

Fed Building DC

A report published this week by the Dallas Fed concludes that the Federal Reserve’s Term Asset-Backed Loan Facility (TALF) played a key role in bolstering commercial real estate finance during the pandemic. The Federal Reserve added outstanding CMBS as eligible collateral for lending through the TALF in 2020 after urgent requests from business coalitions that included The Real Estate Roundtable. (Roundtable Weekly, April 17, 2020 and Joint Trades letter, March 24, 2020) 

TALF & CRE

  • The report by three authors with the Federal Reserve Bank of Dallas’ Research Department states the value of CRE assets at the onset of the pandemic in Feb. 2020 – particularly office towers, retail centers and hotels – suddenly became uncertain. The TALF’s subsequent support of asset-backed securities successfully anchored CMBS prices and helped to steady CRE finance during a tumultuous economic environment.
  • The TALF, previously used during the 2008 financial crisis, was relaunched by the Fed on March 23, 2020 in response to the Covid-19 crisis.
  • A business coalition that included The Roundtable on March 24, 2020 urged the Federal Reserve, Treasury, and Federal Housing Finance Agency to immediately expand the TALF to include non-agency CMBS – including legacy private-label conduit and single-asset single borrower (SASB) assets. The coalition stated the inclusion of private-label assets would stabilize asset prices and shore up the balance sheets of market participants. (Joint Industry letter)
  • On April 9, the Federal Reserve announced the range of TALF-eligible collateral would expand to include triple-A rated tranches of both outstanding (legacy) CMBS, commercial mortgage loans and newly issued collateralized loan obligations. However, the updated term sheet excluded single-asset single borrower (SASB) CMBS and commercial real estate collateralized loan obligations (CRE CLOs). (Federal Reserve news release and Term Sheet)
  • Six real estate industry organizations, including The Roundtable, wrote again to federal regulators on April 14, 2020 about the urgent need to include a wider range of investment grade commercial real estate debt instruments in the Fed’s TALF.
  • The 2020 letter stated, “Commercial and multifamily real estate assets that were perfectly healthy just weeks ago now face massive stress and a wave of payment and covenant defaults.”

  • The Fed on May 12, 2020 broadened the range of leveraged loans that could be used as collateral for the TALF to include new Triple-A rated collateralized loan obligations (CLOs) with leveraged loans. (Fed news release and Term Sheet)

TALF Lessons 

Federal Reserve Building up close

The report published this week concludes the TALF proved especially important in supporting commercial real estate finance. “The TALF program structure provided needed liquidity to investors at the height of the pandemic, but it incentivized borrowers to exit as normal market conditions returned, allowing the program to quickly unwind,” the article states. 

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Federal Reserve’s Robert Kaplan Discusses Economic Outlook with Roundtable; Real Estate Coalition Urges State and Local Officials to Distribute Federal Pandemic Relief Funds

Posted on by Trey Jackson

Kaplan Discussion

Federal Reserve Bank of Dallas President and CEO Robert S. Kaplan, top left in photo, on April 12 discussed a wide range of monetary and fiscal policy issues with Roundtable Chairman Emeritus Robert S. Taubman (Chairman & CEO, Taubman Centers, Inc.), top right, and Roundtable President and CEO Jeffrey DeBoer, center. (Watch the Kaplan video interview on The Roundtable’s YouTube Channel)

The Fed View

  • The remote discussion focused on the overall economy, inflation trends, affordable housing, commercial real estate, the banking industry and cryptocurrency. Among Mr. Kaplan’s key points:
    • The Dallas Fed forecast for the 2021 U.S. economy’s growth rate is 6.5 percent. 

    • The distribution of COVID-19 vaccines is outpacing the spread of the virus, positively affecting economic growth.  

    • A recovering economy follows improved health conditions, with expected increases in consumer mobility and spending.

    • A significant element driving the economic recovery is “Substantial fiscal policy, much more substantial as a percentage of GDP than we had during the Great Recession.” 
  • Kaplan acknowledged the challenge of balancing central bank monetary policies with fiscal policies enacted by lawmakers. “Anytime there’s fiscal actions or other changes, you have to keep recalibrating that balance. There’s no textbook for this because we haven’t been through a period where we were shut down and we’re now reopening … and there’s no precedent in recent years of fiscal policy that’s this size of GDP,” Kaplan said.  (Video of the discussion)
  • He commented about the yield on U.S. Treasuries, which rose to 1.77% last month. “As we recover, it wouldn’t surprise me for it to drift higher, the 10 year,” Kaplan said, adding, “There’s no shortage of capital” to buy Treasuries. (BGov, April 9)
  • Kaplan also addressed the economic trends monitored by the Dallas Fed, reopening progress and CRE debt exposure to banks.  

Pandemic Relief Funds & Distribution 

treasury-department-building_x475w

  • Significant fiscal policy enacted by Washington lawmakers last month authorized hundreds of billions in pandemic relief under the American Rescue Plan Act of 2021 to households, small businesses, and the hospitality industry suffering from the economic impact of COVID-19. (Roundtable Weekly, March 12, 2021)
     
  • The Wall Street Journal reported on April 13 that state and local authorities are overwhelmed with “how to allocate $25 billion in federal rental relief, leaving many tenants and landlords waiting weeks or months for their share.”
     
  • The Roundtable is part of a broad real estate coalition that wrote on April 15 to state, county and municipal officials, urging them to distribute the allocated federal funds as soon as possible. (Coalition letter)
     
  • The coalition letter emphasized the need for elected state and local leaders “to quickly and fully allocate available American Rescue Plan federal funds to provide assistance to renters, consumer-facing small businesses, and impacted industries such as retail, tourism, travel, and hospitality that are having trouble paying rents, mortgages or remaining viable enterprises due to the COVID-19 pandemic.”
     
  • The letter adds, “Such assistance would make a big difference in the lives of thousands upon thousands of COVID-19 affected renters and businesses in their cities, counties, and states – and would also provide stability to the buildings and communities in which they live.” 

The Treasury Department continues to implement pandemic recovery programs, including the State and Local Fiscal Recovery Fund, State Small Business Credit Initiative, and renter and homeowner assistance. Treasury Secretary Yellen  and White House Rescue Plan Coordinator Gene Sperling met yesterday with members of the National Governor’s Association Executive Committee to determine the most efficient and effective way to get federal resources to states. (Treasury Dept readout, April 15) 

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Treasury Requests Cessation of Several Fed Emergency Lending Programs and Return of Unused Funds; Senate Republicans Want Funds Repurposed for Pandemic Relief

Posted on by Trey Jackson

Treasury Secretary Steven Mnuchin sent a letter to Federal Reserve Chairman Jay Powell yesterday requesting that five emergency lending facilities, including the Main Street Lending Program (MSLP), should not be extended past their scheduled expiration on December 31, 2020. Mnuchin also requested the Fed to return unused Treasury loan funds from the programs for Congress to re-appropriate. (Treasury letter and The Wall Street Journal, Nov. 19)

  • The MSLP has the capacity to issue up to $600 billion in loans, yet has only completed approximately 400 loans totaling $3.7 billion. (Washington Post, Oct, 30)
  • The programs were created as part of the CARES Act coronavirus aid package passed in March, which included funding for all the Fed’s emergency lending facilities. (The Hill, Nov. 19)
  • Mnuchin’s Nov. 19 letter stated, “I am requesting that the Federal Reserve return the unused funds to the Treasury. This will allow Congress to re-appropriate $455 billion, consisting of $429 billion in excess Treasury funds for the Federal Reserve facilities and $26 billion in unused Treasury direct loan funds.”
  • The decision to end the lending facilities operations cannot be done unilaterally by Treasury; it would require cooperation by the Fed.
  • Chairman Powell issued a statement after markets closed yesterday that signaled disagreement. “The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.” (Wall Street Journal, and CNBC interview with Mnuchin, Nov. 20)
  • Powell also said on Nov. 17 that “I don’t think it is time yet, or very soon” to close down the programs and that the Fed was “using all of our tools to support the recovery for as long as it takes until the job is well and truly done.” (Reuters, Nov. 17)
  • If the Trump administration decides not to extend the Fed programs, the new administration’s Treasury Department could reestablish them after Biden is inaugurated on Jan. 20. (Wall Street Journal, Nov. 10)

Pandemic Relief Package

Capitol side with sun and clouds

The request for the Fed to return unused funds from the lending programs comes as Congress remains at an impasse over costs for a pandemic relief package – the Trump administration offered a ceiling of $1.8 trillion, House Democrats passed a $2.2 trillion bill, and Senate Republicans favored a $500 billion measure. (Roundtable Weekly, Nov. 6)

  • Mnuchin and Senate Majority Leader Mitch McConnell (R-KY) today discussed a strategy for reviving talks between Republicans and Democrats over the stalled pandemic stimulus package. McConnell commented after the meeting about utilizing the unused Fed funds for a relief package, stating, “Congress should repurpose this money toward the kinds of urgent, important, and targeted relief measures that Republicans have been trying to pass for months, but which Democrats have repeatedly blocked with all-or-nothing demands.” (AP, Nov. 20)
  • President-elect Joe Biden on Monday urged Congress to advance the $2.2 trillion HEROES Act (H.R. 925) passed by the House. “Right now, Congress should come together and pass a COVID relief package like the HEROES Act that the House passed six months ago. Once we shut down the virus and deliver economic relief to workers and businesses, then we can start to build back better than before,” Biden said. (BGov, Nov. 16)
  • A report issued Wednesday by The Century Foundation shows that approximately 12 million Americans will lose unemployment insurance by the end of the year due to deadlines set by Congress early in the pandemic. (Washington Post and GlobeSt, “12M Workers Set to Lose Unemployment Benefits,” Nov. 19)

Lawmakers also face the added pressure of passing a government funding bill to avoid a Dec. 11 partial shutdown. Congress may choose to merge some COVID-19 aid measures into a sweeping multi-trillion-dollar omnibus funding bill during the lame-duck session to address both issues – or attempt to pass separate bills.

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Fed Announces Limited Adjustments to Main Street Lending Program Terms

Posted on by Trey Jackson

The Federal Reserve in Washington, DC

The Federal Reserve on Oct. 30 announced limited adjustments to the terms of its Main Street Lending Program (MSLP) facility in an attempt to support small and medium-sized businesses affected by the COVID-19 outbreak. (Fed news release) 

  • The MSLP has the capacity to issue up to $600 billion in loans, yet has only completed approximately 400 loans totaling $3.7 billion. (Washington Post, Oct, 30) 
  • With congressional negotiations over a pandemic relief package at an impasse, The Fed reduced the minimum loan size for three Main Street facilities from $250,000 to $100,000 and reduced fees to lenders who facilitate the loans. (Wall Street Journal and Roundtable Weekly, Oct. 30)
  • The Fed also issued a set of frequently asked questions to clarify that Paycheck Protection Program loans of up to $2 million may be excluded when determining the maximum MSLP loan size. (MSLP FAQs, Oct. 30)
  • Real Estate Roundtable and President Jeffrey DeBoer yesterday commented to CoStar, “The Main Street Lending Program won’t be energized by modest revisions. Banks need greater incentives to focus on the program, the borrower eligibility rules must be rethought, and the loan underwriting rules should better reflect the needs of troubled businesses. Without far deeper reforms to the program, its full potential assistance will continue to be untapped,” DeBoer stated. (CoStar, Nov. 5, “Modest Changes May Not Be Enough to Make Relief Effective, Head of Real Estate Industry Group Says”)
  • DeBoer testified about the MSLP on Sept. 9 before the Senate Banking, Housing and Urban Affairs Committee on how to improve access to Federal Reserve credit facilities for businesses such as manufacturing, retail, restaurants, real estate owners, and other asset-based borrowers. (Roundtable Weekly, Sept. 11)
  • DeBoer told the Committee, “The recommendations that I have made on the Main Street Lending Program … really require no additional funds from the federal government. They are administrative. They could be done tomorrow by the Treasury and the Fed if they wanted to.” (Roundtable Oral Comments and written statement / video of DeBoer’s Testimony and Q&A with Senators)
  • Fed Chairman Jay Powell testified before Congress on Sept. 23 that the central bank has “done basically all of the things that we can think of.” Powell added, “There is nothing major that we see now that would be consistent with opening it (MSLP) up further.” (American Banker, Sept. 23)
  • Last month, The Fed released its Summary of Commentary on Current Economic Conditions, showing that “commercial real estate conditions continued to deteriorate in many Districts.” (The Fed’s Beige Book, Oct. 22)
  • The Fed lending programs backed by pandemic relief legislation are set to expire at the end of December.  Fed Chairman Powell and Treasury Secretary Steven Mnuchin must decide which programs to extend into 2021. (New York Times, Nov. 5) 

The Roundtable continues to urge regulators and lawmakers to develop specific MSLP changes to bolster small business tenants and other industries struggling with the pandemic’s ongoing economic impact. 

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