Commercial Real Estate Loan Regulation After the Midterms: What to Expect

The CRE Industry as a whole should be ready to advocate regardless of the election’s outcome.

As the midterm elections approach, observers of the market wonder whether the results will have any bearing on the commercial real estate market.

In a recent analysis by Trepp, Mike Flood of the Mortgage Bankers Association stated that a split Congress with Republicans in charge of the House of Representatives and Democrats still in charge of the Senate is “the most likely outcome.” Additionally, he adds, “it will be difficult to pass significant, serious, industry-changing legislation with a split Congress and two parties with different perspectives.” It would be unusual for Republicans to win enough seats in both houses to override the president’s veto, even if they win both the House and the Senate. As a result, a divided Congress or even one that is controlled by Republicans will probably struggle to adopt significant legislation that would impact our industry.

Flood points out that President Biden will remain in office through 2024 regardless of the results of the midterm elections, and since the President selects the nominees for the regulatory agencies that the CRE finance industry is concerned about, “Democrats will control regulatory agendas regardless of what happens on November 8.”

”┬áRegulators will continue active oversight of the industry no matter who controls Congress,” According to Flood, in order to manage their annual budgets, financial regulators outside of HUD rely more on fees levied against the industry than on funds that have been specifically allocated. Therefore, aside from exercising rigorous oversight, few tools are available to prohibit regulators from pursuing their existing goals, even in a situation where Republicans control all branches of Congress.

States and the federal 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,” according to Flood, who also notes that 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” (but is currently focused primarily on the residential market).

Future SEC measures may affect CMBS and CLO issuers as well; according to Flood, “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.”

He adds that the HUD MAP program, competition from the HUD FFB program, big loan limits, statutory loan restrictions, and how to make the MAP guide more effective for lenders and servicers are all problems that “HUD lenders will be looking at both offense and defense.”

Whatever the results of the election, Flood advises that CRE finance professionals be ready to speak up.

We are ready to assist investors with Santa Ana commercial properties. For questions about Commercial Property Management, contact your Orange County commercial real estate advisors at SVN Vanguard.

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