What To Expect From Regulators Post-Midterms

As the midterm elections loom, industry watchers are speculating as to what impact, if any, the outcome of those races will have on commercial real estate.

Mike Flood of the Mortgage Bankers Association recently wrote in an analysis published by Trepp that “the most likely outcome” is a split Congress, with Republicans controlling the House of Representatives and Democrats remaining in control of the Senate. And “with a split Congress and two parties with opposing views…it will be hard to pass large meaningful industry-changing legislation,” he says. “Even if Republicans win both the House and the Senate, it would be surprising for the party to win enough seats in both houses to withstand a Presidential veto. Therefore, a split Congress, or even a Republican-controlled Congress, will likely have a tough time passing meaningful legislation that would affect our industry.”

But Flood notes that regardless of the outcome of the midterms, President Biden will remain in office through 2024 — and since the President chooses the nominees for regulatory agencies the CRE finance industry are concerned with, “Democrats will control regulatory agendas no matter what happens on November 8.”

“Regulators will continue active oversight of the industry no matter who controls Congress. Outside of HUD, financial regulators are more reliant on fees assessed against the industry than appropriated dollars to manage their annual budgets,” Flood says. “Therefore, even in a scenario where Republicans control all of Congress, outside of conducting aggressive oversight, there are few if any sticks that can be used to stop regulators from continuing their current agendas.”

Flood says the MBA has noted that “policymakers are starting to ask questions about private equity ownership of insurance companies, and what – if any – risks may be out there to mitigate.” He also says states and the general government may at some point apply Community Reinvestment Act standards to independent mortgage banks and non-banks, which “could bleed over to the commercial and multifamily side of the industry” (but is currently focused primarily on the residential market).

CMBS and CLO issuers may also be subject to SEC actions in the future: currently, Flood says, “the SEC is focused on what type and whether the industry should have any disclosure requirements in at issuance and ongoing documentation. If securitization is included, such a standard would increase reporting requirements for the industry.” GSE lenders will have to grapple with several new rulemakings in the short term, including what agency lending caps will be in 2023, and whether a proposal to change the housing goal structure from a hard number of units per year to a percentage of the caps will pass.

And “HUD lenders will be looking at both offense and defense” on issues including the HUD MAP program and competition from the HUD FFB program, large loan limits, statutory loan limits, and how to make the MAP guide more efficient for lenders and servicers, he says.

“No matter the outcome of the election, CRE finance professionals should be prepared to advocate,” Flood says.