Statement of
Jeffrey Weidell
Chief Executive Officer, Northmarq
On Behalf of the Mortgage Bankers Association
U.S. House of Representatives
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
“Health of the Commercial Real Estate Markets and
Removing Regulatory Hurdles to Ensure Continued
Strength”
Tuesday, April 30, 2024
2:00 PM
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
2
Chairwoman McClain, Ranking Member Porter, and members of the subcommittee, thank you
for the opportunity to testify on behalf of the Mortgage Bankers Association
1
(MBA). My name is
Jeff Weidell, and I am the Chief Executive Officer at Northmarq, a firm acting as a capital
markets resource for commercial real estate investors that provides services involving top
industry experts in debt, equity, investment sales, and loan servicing. I am also testifying in my
capacity as the current chair of MBA’s Commercial/Multifamily Board of Governors. Thank you
for the opportunity to speak with you today.
In my written statement and through my remarks, I will provide an overview of the
commercial/multifamily real estate sector, a “snapshot” of its current economic landscape, and
details regarding immediate actions Congress and regulators can take – or avoid – to
encourage sustainable development that ensures the continued strength of this vital portion of
the American economy.
OVERVIEW OF THE COMMERCIAL REAL ESTATE (CRE) MARKET
The commercial real estate (CRE) market is big and diverse – with a range of different property
types, geographic markets and submarkets, borrower and lender types, and loan and deal
vintages. For example, the list of property types includes multifamily, office, retail, industrial,
lodging, self-storage, and many others. These properties are located in real estate markets
across the country – New York, Los Angeles, Miami, Atlanta, Pittsburgh, Des Moines, Detroit –
and everywhere in between.
There are properties in downtown office corridors, entertainment districts, edge cities, retail
strips, suburban neighborhoods, and exurban markets. They are owned by cross-border
investors, sophisticated institutions and funds, public companies like REITs, private investors
and individuals, and more. Meanwhile, the loans supporting these properties are either funded
or subsidized by banks, life insurance companies, the housing Government Sponsored
Enterprises or “GSEs” (Fannie Mae and Freddie Mac), the Department of Housing and Urban
Development’s (HUD) Federal Housing Administration (FHA), the Commercial Mortgage-
Backed Securities (CMBS) market, investor-driven lenders, and other capital sources.
1
The Mortgage Bankers Association (MBA) is the national association representing the real estate
finance industry, an industry that employs more than 275,000 people in virtually every community in the
country. Headquartered in Washington, D.C., the association works to ensure the continued strength of
the nation's residential and commercial real estate markets, to expand homeownership, and to extend
access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and
fosters professional excellence among real estate finance employees through a wide range of educational
programs and a variety of publications. Its membership of more than 2,000 companies includes all
elements of real estate finance: independent mortgage banks, mortgage brokers, commercial banks,
thrifts, REITs, Wall Street conduits, life insurance companies, credit unions, and others in the mortgage
lending field. For additional information, visit MBA's website: www.mba.org.
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
3
This is all to say it is exceedingly difficult to paint the picture of commercial real estate with
broad brushstrokes. CRE operates within three different market divisions – space, equity, and
debt. Over the last two years, there have been significant changes in all three of these market
niches.
In the space markets – the supply and demand for commercial real estate space – all eyes
recently have been fixed on office properties and the impacts of hybrid work. Living in San
Francisco, I can tell you I see the daily impacts of that shift – and would note the importance of
the significant variety between and within office and other markets.
In the equity markets – which drive property values and sales activity – large amounts of capital
have been raised to invest, but a lack of sales transactions has made pricing less transparent.
Different price indices indicate commercial property prices could be down anywhere between 9
and 22 percent from their recent peaks. In general, existing owners are holding onto their
properties unless something (e.g., loans that are maturing, property cash flows and major lease
rolls, etc.) forces their hands.
In the debt markets, interest rates began to rise dramatically two years ago, which clearly
changed the borrowing environment for a wide range of property owners and potential owners.
Rate volatility has made pricing new deals challenging and many owners and lenders are
holding on to their positions, hoping that falling rates will eventually bring some relief. Given
where we had been, rates on 10-year Treasury notes “in the upper 4s” are a difficult pill for
many property owners to swallow – given the significant resulting increases in debt payments.
The uncertainty across all these markets has led to a significant slowdown in CRE transaction
activity. If a property owner does not need to act with regard to a sale or a refinancing, they
generally have not. This has frozen the fluidity of the markets, with both sales transaction
volume and mortgage borrowing down roughly 50 percent in 2023 from the previous year.
Focusing more specifically on the commercial mortgage market, it, too, is far from monolithic.
MBA estimates there is $4.7 trillion of commercial mortgage debt outstanding, with about $2
trillion backed by apartment buildings, $740 billion by office, $415 billion each by retail and
industrial, and then the remainder by a range of other property types.
Commercial banks hold the largest share (38 percent) at $1.8 trillion, but the bank total is split
between apartments (roughly 34 percent of the bank total), office (19 percent), retail (9 percent),
industrial (9 percent), and a range of other property types, including lodging, health care, self-
storage, data centers, and more. The GSEs are the second largest holders of commercial
mortgage debt at $1.0 trillion (21 percent of the total). Life insurance companies hold $733
billion (16 percent) and CMBS, Collateralized Loan Obligations (CLOs), and other Asset-Backed
Securities (ABS) hold $593 billion (13 percent).
Succinctly summarized, the $4.7 trillion of commercial mortgage debt is highly diversified.
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
4
Delinquency rates on commercial mortgages have been rising, particularly for loans backed by
office properties. Twenty percent ($929 billion) of the total commercial mortgage debt is set to
mature in 2024. Multifamily makes up the largest piece of those maturities, at $257 billion,
followed by office at $206 billion. Every property and every owner are in a uniquely different
situation, driven by the particulars of their property, its market, the owner’s particular financial
situation, the timing of when the owner purchased the property, how much and when the owner
borrowed, and more. That mix of variables will be critical to determining which properties and
loans face challenges – and which do not.
Between 2014 – a full 10 years ago now – and mid-2022, CRE property values grew by 90
percent, and multifamily values grew by 144 percent. Simply put, if an owner has been holding
their property over time, they have likely built a fair amount of equity.
The real challenge – and opportunity – is that the markets have reset from where they were just
a few years ago – in terms of interest rates, property values, and, in some instances, the
fundamental operations of the properties themselves. Owners, potential owners, developers,
lenders, and other market participants are all working through the process of transitioning the
CRE market to that new reality.
THE U.S. ECONOMY
The U.S. economy ended 2023 on a strong note and has remained more resilient than many
had anticipated.
The gross domestic product (GDP) grew at a seasonally adjusted annual rate of 3.4 percent in
the fourth quarter of 2023, down from 4.9 percent in Q3 but otherwise the strongest showing
since the end of 2021. Consumer expenditures remained robust, with spending on goods
growing at a real rate of 3.0 percent per year and spending on services growing by 3.4 percent.
The preliminary GDP numbers for Q1 of 2024 showed continued economic growth, but at a
pace roughly half that of the previous quarter.
The job market has been equally steady, adding a seasonally adjusted average of 212,000 jobs
per month during Q4 of 2023 and 256,000 in January, 270,000 in February, and 303,000 in
March. The unemployment rate was 3.8 percent in March.
The still-tight labor market has helped elevate hourly earnings to be 4.1 percent higher than they
were a year ago. Headline inflation was 3.5 percent in March (down from its June 2022 peak of
9.1 percent) – meaning that earnings growth is once again outpacing the rise in prices.
The Federal Reserve continues to signal patience and a focus on incoming data, balancing
inflation, labor market strength and the Fed Funds Rate, which has been held steady since last
summer. Ten-year Treasury yields have spent most of this year above 4 percent, while the
Secured Overnight Financing Rate (SOFR) has hovered above 5 percent.
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
5
PROPERTY FUNDAMENTALS
Commercial property markets are dynamic, with different property types moving in different
directions, and significant variation by property type and subtype, market and submarket,
quality, vintage, and more.
Office
In September 2022, MBA wrote a white paper looking into office demand in a post-pandemic
world. The paper began by stating: “Work-from-home has brought an existential question to the
office market. Two-and-a-half-years into the pandemic, with office properties currently at 40
percent of their pre-pandemic occupancy, what’s ahead for the sector?”
Now, another year and a half later, that question remains largely unanswered, although we are
starting to see some trends. Offices have seen an uptick in usage, with significant variation
between markets and submarkets. Location and property quality definitely matter. In a recent
note, J.P. Morgan noted, “Focusing on the NYC office market and using a sample of Single
Asset Single Borrower (SASB) office properties, we estimate that workers are returning to the
office at a rate of 78% of their 2019 levels and workers are commuting to the office more during
the middle of the week. Additionally, people who work in the Times Square neighborhood are
returning to work at a higher rate relative to those who work in other NYC neighborhoods.”
We are starting to delineate the “survivors” more clearly – buildings that are attracting new
leases and owners that are investing in the tax and insurance (and other) elements of keeping a
building going. Those buildings will attract capital, and with it, new tenants. As other buildings
and owners struggle, the universe of available office space will decline, bringing greater
balance.
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
6
Retail
As MBA has noted previously, there are certain similarities between where the office market is
today and where retail was a number of years ago. Questions about the future of malls and a
general “over-retailing” of the United States cast a prior pall over investing and lending on retail
properties. But consistent economic growth and the strength of the consumer have turned that
narrative around. Retail is now among the more favored property types.
For example, JLL’s Q4 Retail Outlook noted, “Retail net absorption surged 37.2% quarter-over-
quarter to 17.6 million square feet – boosted by a significant jump in mall net absorption.
Conversely, deliveries decreased 5.1% from the previous quarter. With little new construction
and rising absorption, vacancy fell 20 basis points to 4.0% - the lowest on record since 2007.”
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
7
Apartment/Multifamily
After a number of years of demand significantly outstripping the supply of apartments,
developers ramped up building activity and the reverse is now true. An annualized pace of more
than 500,000 multifamily units were delivered in December 2023 and January 2024, compared
to just more than 350,000 delivered in 2022. And there remain nearly 1 million more units
currently under construction.
That new supply has brought the multifamily rental vacancy rate from 6.5 percent at the end of
2022 to 7.7 percent (as of the end of 2023). Following the dictates of basic economic theory, the
rent pressure observed when demand exceeded supply has softened. A new series from the
Bureau of Labor Statistics that tracks the rents paid by newly signed tenants showed those
asking rents in Q4 2023 declined 4 percent from a year earlier. Because rents of in-place
tenants were still catching up to the previous increases, Q4 rents for all tenants increased 5.3
percent from a year earlier.
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
8
The moderation in rent growth will bring relief to many tenants and potential challenges to some
owners whose expenses outpace income growth. It is also unlikely to significantly aid the many
renter households whose incomes are below what it costs to build and maintain housing and
who depend on some form of subsidy to make up the gap.
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
9
Industrial
Industrial market dynamics are – in broad terms – similar to those in multifamily. The onset of
the pandemic led to a surge in demand that easily exceeded existing supply – driving vacancies
lower and rents higher. Strong new development followed, bringing with it higher vacancy rates
and more stability to rents. That, in turn, has slowed the development pipeline. For example, on
their Q4 earnings call, Prologis noted, “In closing, we know that the market is not yet out of the
woods with regards to incoming supply, but the combination of a stronger backdrop, continued
low level of starts, and a calmer capital markets environment has us optimistic that 2024 will be
another great year.”
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
10
PROPERTY SALES
Sales of commercial real estate properties remained subdued during Q4 2023, capping a year
of subpar activity. Sales activity in Q4 was 38 percent lower than a year earlier and down 51
percent for the year. The slower decline in Q4 is less a sign of market improvement and more
the mathematical result of the fact that Q4 2022 had already seen a significant slide from
previous quarters.
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
11
Counter to what one might conclude from the headlines, the drop-off in sales was not all about
office properties. While sales of office properties slid 56 percent from 2022 to 2023, sales of
retail properties fell 38 percent, industrial fell 44 percent, hotel fell 47 percent, and apartments
fell 61 percent.
The lack of sales transactions continues to leave a “blind spot” on property valuations, with
different price indexes showing different results. A CRE price index used by the Federal
Reserve reported a 6 percent value decline during Q4 2023, bringing values 9 percent lower
than their recent peak. Green Street also reported a 6 percent Q4 decline, but with values now
22 percent lower than peak. MSCI’s Real Capital Analytics Commercial Property Price Indexes
(CPPI) reported property values were flat during Q4 2023 and down 11 percent from peak. Until
sales activity picks up, it is likely the various price indexes will continue to have a “muddy” view
into values.
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
12
MORTGAGE ORIGINATIONS
Borrowing and lending backed by commercial real estate remained subdued to close out 2023.
The fourth quarter saw a small pick-up from the previous quarter, as is usually the case, but was
still down about 25 percent from 2022’s already suppressed fourth-quarter pace. For the year,
mortgage originations were about 50 percent below 2022 levels, with every major property type
and capital source experiencing a decline.
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
13
Commercial and multifamily mortgage loan originations were 25 percent lower in Q4 of 2023
compared to a year earlier and increased 13 percent from Q3 of 2023.
Decreases in originations for office, health care, multifamily, and industrial properties led to the
overall drop in commercial lending volumes when compared to Q4 of 2022. There was a 68
percent year-over-year decrease in the dollar volume of loans for office properties, a 39 percent
decrease for health care properties, a 27 percent decrease for multifamily properties, and a 7
percent decrease for industrial properties. Retail properties increased 50 percent, and hotel
property loan originations increased 81 percent, respectively, compared to Q4 of 2022.
Among investor types, the dollar volume of loans originated for depositories decreased by 53
percent year-over-year. There was a 29 percent decrease for GSE loans, a 6 percent decrease
in life insurance company loans, and a one percent decrease for investor-driven lender loans.
And there was a 144 percent increase in the dollar volume of CMBS loans.
MORTGAGE MATURITIES
The lack of transactions and other activity last year, coupled with built-in extension options and
lender and servicer flexibility, has meant that many loans that were set to mature in 2023 have
been extended or otherwise modified and will now mature in 2024, 2026, 2028 or in other
coming years. These extensions and modifications have pushed the amount of CRE mortgages
maturing this year from $659 billion to $929 billion.
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
14
The loan maturities vary significantly by investor and property type groups. Just $28 billion (3
percent) of the outstanding balance of multifamily and health care mortgages held or
guaranteed by Fannie Mae, Freddie Mac, FHA, and Ginnie Mae will mature in 2024. Life
insurance companies will see $59 billion (8 percent) of their outstanding mortgage balances
mature in 2024. By contrast, $441 billion (25 percent) of the outstanding balance of mortgages
held by depositories, $234 billion (31 percent) in CMBS, CLOs, or other ABS and $168 billion
(36 percent) of the mortgages held by credit companies, in warehouse, or by other lenders will
mature in 2024.
By property type, 12 percent of mortgages backed by multifamily properties will mature in 2024,
as will 17 percent of those backed by retail and 18 percent for healthcare properties. Among
loans backed by office properties, 25 percent will come due in 2024, as will 27 percent of
industrial loans and 38 percent of hotel/motel loans.
Commercial mortgages tend to be relatively long-lived, spreading maturities out over several
years. Volatility and uncertainty around interest rates, a lack of clarity on property values, and
questions about some property fundamentals have suppressed sales and financing
transactions. This year’s maturities, coupled with greater clarity in those and other areas, should
begin to break the logjam in the markets.
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
15
MORTGAGE DEBT OUTSTANDING
The amount of commercial mortgage debt outstanding grew in the final quarter of 2023 and for
the year as a whole. However, the increase was among the slowest paces since the mid-
2010s.
Total mortgage debt outstanding rose by 0.9 percent ($41.8 billion) to $4.69 trillion in Q4 of
2023. Multifamily mortgage debt grew by $25.0 billion (1.2 percent) to $2.09 trillion during Q4.
Commercial banks continue to hold the largest share (38 percent) of commercial mortgages at
$1.8 trillion. GSE portfolios are the second largest holders of commercial/multifamily mortgages,
at $1.0 trillion (21 percent of the total). Life insurance companies hold $733 billion (16 percent),
and CMBS, CLO, and other ABS issues hold $593 billion (13 percent).
Looking solely at multifamily mortgages, GSE portfolios hold the largest share of total debt
outstanding at $1.0 trillion (48 percent of the total), followed by commercial banks with $612
billion (29 percent), life insurance companies with $235 billion (11 percent), state and local
governments with $116 billion (6 percent), and CMBS, CLO and other ABS issues with $67
billion (3 percent).
Every major capital source increased its mortgage holdings during the year. Mortgage
originations were down by roughly 50 percent in 2023 compared to 2022, but that meant that
few loans were paying off, helping maintain portfolio sizes even in the face of lower inflows.
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
16
LOAN PERFORMANCE
While overall delinquencies remained flat, the delinquency rate for loans backed by office
properties rose again during the first three months of this year. Loans across property types are
adjusting to higher interest rates and uncertainty about property values, but the continued fog
around the impact of hybrid work adds another challenge for office properties and their loans.
As noted previously, the commercial real estate market is large and diverse, with a wide mix of
property types, geographic markets and submarkets, property and loan sizes, owners, lenders,
vintages, and other characteristics. With 20 percent of the $4.7 trillion of outstanding
commercial mortgage debt maturing this year, each of those factors will play a part in
determining which loans may face challenges and which may not.
The balance of commercial mortgages that are not current was unchanged in the First Quarter
2024 (compared to Q4 2023).
• 96.8% of outstanding loan balances were current or less than 30 days late at the end of
the quarter, unchanged from the previous quarter.
o 2.5% were 90+ days delinquent or in foreclosure/“real estate owned” (REO), up
from 2.3% the previous quarter.
o 0.3% were 60-90 days delinquent, unchanged from the previous quarter.
o 0.4% were 30-60 days delinquent, down from 0.6%.
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
17
• Loans backed by office properties drove the increase.
o 6.8% of the balance of office property loans were 30 days or more days
delinquent, up from 6.5% at the end of last quarter.
o 6.3% of the balance of lodging loans were delinquent, up from 6.1%.
o 4.7% of retail balances were delinquent, down from 5.0% the previous quarter.
o 1.2% of multifamily balances were delinquent, unchanged from the previous
quarter.
o 1.2% of the balance of industrial property loans were delinquent, up from 0.9%.
Every major capital source has seen an increase over the last six months, as higher interest
rates, uncertainty about property values, and challenges in some property fundamentals work
their way through the markets.
Based on the unpaid principal balance (UPB) of loans, delinquency rates for each group at the
end of the fourth quarter of 2023 were as follows:
• Banks and thrifts (90 or more days delinquent or in non-accrual): 0.94 percent, an
increase of 0.09 percentage points from the third quarter of 2023;
• Life company portfolios (60 or more days delinquent): 0.36 percent, an increase of
0.04 percentage points from the third quarter of 2023;
• Fannie Mae (60 or more days delinquent): 0.46 percent, a decrease of 0.08
percentage points from the third quarter of 2023;
• Freddie Mac (60 or more days delinquent): 0.28 percent, an increase of 0.04
percentage points from the third quarter of 2023; and
• CMBS (30 or more days delinquent or in foreclosure/REO: 4.30 percent, an
increase of 0.04 percentage points from the third quarter of 2023.
Long-term interest rates have come down from their highs of last year, which should provide
some relief to some loans, but many properties and loans still face higher rates, uncertainty
about property values and – for some properties – changes in fundamentals. Each loan and
property faces a different set of circumstances, which will come into play as the market works
through loans that mature this year.
REGULATORY IMPEDIMENTS
Basel III End Game
The Basel III End Game proposal (Basel NPR) poses unwarranted risks - to the housing and
real estate markets specifically - and contradicts many of the Biden administration’s policy
goals, including increasing affordable housing (both ownership and rental), fostering bank
competition over consolidation, and the closing of significant racial homeownership and wealth
gaps.
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
18
The proposed changes effectively increase capital requirements at larger banks by an estimated
15 to 20 percent – large enough to impact credit availability economy-wide, as well as which
lines of business banks choose to support – with potential implications for the entire mortgage
market, including commercial and multifamily lending.
For commercial real estate specifically, the Basel NPR contains several concerning provisions
that could negatively impact the availability of commercial credit. For example, the NPR includes
an expanded definition of “defaulted real estate exposure” for commercial loans. This expanded
definition is broader than the current capital rule and requires banks to evaluate certain loan
assets at the borrower level rather than the asset/exposure level. This will result in current loans
requiring an elevated risk weight (and increased capital required) if the borrower has any other
loan with any other creditor in default. This expanded definition is problematic, undoable, and
would place significant cost and operational burdens on banks, as:
• Banks do not have a system or framework in place to track in real-time all debt
obligations of their borrowers and any parent companies/owners of the borrower.
• Creditors do not notify other creditors of a default or cure event, nor is there a uniform
national data repository for real estate loan status, including defaults and cures.
Also, most commercial real estate loans are made on a non-recourse basis (secured only by the
property) to a bankruptcy-remote special purpose entity with no other real estate obligations. In
these cases, evaluating default at the exposure level and the obligor level is the same. The
default status of mortgages made to and backed by single-purpose, bankruptcy-remote entities
that own income-producing properties should be entirely dependent on the status of that
particular loan.
Furthermore, the Basel NPR could raise capital charges on undrawn warehouse lines of credit,
thereby decreasing financing opportunities available to commercial real estate lenders and
borrowers – and making securitization executions more expensive.
The Basel NPR also lacks the robust economic impact analysis that usually accompanies such
a significant change in bank capital standards – a scant 15 pages of impact assessment out of
nearly 1,100 total pages for the rule. Any major change in public policy warrants a reasonable
consideration of its effects and impacts – especially when the policy change directly impacts
everything from the cost of funds for our largest financial institutions to the costs of multifamily
housing.
Given the broad bipartisan criticism of the Basel NPR to date, Congress should continue to
push for reconsideration of the proposal until a broader consensus can be reached. More
specifically, Congress should ask the engaged banking agencies – the Federal Reserve, the
Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the
Currency (OCC) – to strongly consider the recommendations in the MBA comment letter and
conduct a more rigorous and thoughtful impact analysis prior to the finalization of any new
capital framework.
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
19
Our recommendations provide targeted fixes to the proposed capital rule – and address long-
standing problems with the current rules – that will strengthen the stability of our commercial
lending and housing finance system by incentivizing large banks to increase their direct and
indirect role in the market.
Rent Control
Early last year, the Biden administration announced actions to “enhance tenant protections and
further principles of fair housing.” The announcement included new actions by several federal
agencies and a set of principles called the “Blueprint for a Renters Bill of Rights.” Included in the
set of federal agency actions was an examination by the Federal Housing Finance Agency
(FHFA) of “proposed actions promoting renter protections and limits on egregious rent
increases.” In January this year, FHFA released a summary of responses received to its May
2023 Request for Input (RFI) on resident-centered practices at multifamily properties backed by
Fannie Mae and Freddie Mac.
The U.S. continues to suffer from a significant shortage of affordable housing. Enacting new or
expanded obligations, like rent control, would disincentivize participation in the GSEs’
multifamily programs. The focus of federal housing policy must be on increasing that supply
rather than creating potentially duplicative and onerous federal regulations that interfere with
state and local laws meant to govern the housing provider and resident relationship.
For decades, the adoption of rent control policies by states and localities has been shown to
decrease affordable housing supply and disproportionately benefit higher-income households.
An example of rent control significantly reducing housing supply was recently seen in St. Paul,
Minnesota. In November 2021, voters in St. Paul passed a rent control measure capping annual
rent increases at 3%. As a result, according to HUD data, residential building permits decreased
by approximately 50% from 2021 to 2022, the year following the passing of the rent control
measure.
2
Alternatively, during that same period from 2021 to 2022, Minneapolis saw an
increase in residential building permits by approximately 15%
3
. Even with major
enhancements/amendments to the program, St. Paul is still hampered by a severe lack of
supply of affordable rental housing.
The administration should refine and prioritize its Housing Supply Act Plan, avoiding the
application of rent control principles – under the guise of tenant protections – to the
Fannie/Freddie or FHA multifamily financing programs.
2
See 2021 vs 2022 for St. Paul, Ramsey County, MN at: SOCDS Building Permits Database (huduser.gov)
3
See id for Minneapolis, Hennepin County, MN.
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
20
Home Mortgage Disclosure Act (HMDA)
HMDA requires mortgage lenders to collect and report information on specific data points
pertaining to their lending practices. The Dodd-Frank Act of 2010 (DFA) transferred HMDA
enforcement to the Consumer Financial Protection Bureau (CFPB) and authorized the CFPB to
require the collection of additional mortgage lending information. CFPB finalized the new rules
amending HMDA regulations (Regulation C) on October 15, 2015, with most new Dodd-Frank
HMDA provisions taking effect on January 1, 2018.
MBA believes the CFPB should further amend HMDA regulations to fully exempt business-to-
business loans secured by multifamily property from HMDA reporting. Such multifamily loans do
not involve consumers, so these transactions should fall outside of the CFPB’s statutory
consumer-focused mission and objectives. Moreover, applying HMDA reporting requirements
designed with single-family lending in mind to multifamily lending is unduly burdensome. Many
multifamily lenders have a low volume of loans (but still meet the reporting thresholds) and do
not have the economies of scale to bear the burden of developing, implementing, and
maintaining the systems and processes necessary to support HMDA reporting. This is
particularly the case for multifamily lenders, who generally do not have access to the full range
of third-party service provider options for HMDA reporting and for which the HMDA reporting
process requires a substantial amount of manual processing.
Section 1071 Small Business Reporting
On March 30, 2023, the CFPB released its small business loan reporting final rule that
implements Section 1071 of the DFA. While enforcement of the final rule is suspended until the
Supreme Court makes its final decision regarding the constitutionality of the funding of the
CFPB, if implementation moves forward, the rule’s requirements will place a significant burden
on commercial lenders. Under the final rule, lenders who originate at least 100 small business
loans in each of the preceding two calendar years are required to report certain demographic
information. A small business has gross revenue of $5 million or less in its most recent fiscal
year.
MBA urged the CFPB to include an overall exemption for loans to finance income-producing
investment properties in the final rule, but the CFPB failed to do so. It is well recognized that
investment property lending is a category of lending distinct from small business lending. For
example, the federal prudential regulatory agencies provide separate supervisory guidance for
small business lending and investment property lending, and Small Business Administration
(SBA) regulations exclude real estate firms that hold real property for investment purposes from
eligibility for SBA small business loan programs. As a result, investment property lending should
not be considered small business lending within the scope of Section 1071, even where an
investor may be “small”.
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
21
POTENTIAL POSITIVE STEPS
HUD
Simply stated, HUD is quickly becoming the most expensive and inefficient place to
originate an apartment loan, has outdated program requirements, employs the use of
unnecessary and exorbitant fees – and, as a result, lender participation in its multifamily
program volume is historically low.
HUD multifamily volume is down significantly over recent years in all aspects of the Multifamily
Accelerated Processing (MAP) program. Volume decreased 58% from FY 2022 to FY 2023 and,
based on annualized Q1 FY 2024 data, volume is on pace to be down another 42% from FY
2023 to FY 2024. That would be a 75% decrease from FY 2022 to FY 2024.
The federal government has an opportunity to spur the production of rental housing through the
HUD MAP program, but improvements are greatly needed. Specifically, HUD should reduce the
multifamily mortgage insurance premium (which is priced too high for the minimal amount of risk
the government takes on with the HUD multifamily program), reduce application and other
closing fees, and reconsider and ease program requirements that raise the cost of building
rental housing.
Reduce Multifamily Mortgage Insurance Premium
The administration has broadly focused on the use of hidden fees, including the potential
elimination of unnecessary fees for consumers. It is ironic, therefore, that HUD itself has placed
burdens on renters today by imposing hidden, duplicative, and unnecessarily high fees on
developers and providers of housing. These costs result in fewer units being developed and
higher rents for tenants.
The mortgage insurance premium (MIP) charged to FHA borrowers is designed to protect
taxpayers and is meant to reflect the risk to the FHA General Insurance and Special Risk
Insurance (GI-SRI) Fund. However, during the last 12 years, HUD has insured more than $170
billion of multifamily loans, collecting premiums of $3 billion from FHA multifamily borrowers, and
yet has incurred a loss of just $27 million (from only 7 properties) on multifamily loans. Clearly,
the premium rate far outweighs the risk to the taxpayer. Recently, HUD was able to demonstrate
the benefits they have seen from reducing the single-family MIP. The premium reduction helped
more than 682,000 borrowers save an average of $876 annually, saving them nearly $600
million collectively in just the last year. Reducing the multifamily premium would result in similar
benefits for renters and for housing production.
Reduce Application and Other Closing Fees
HUD’s application fee adds additional cost to the already high price of FHA financing. Per the
MAP Guide, HUD’s non-refundable application fee for a multifamily FHA loan is $3 per $1,000 of
the requested mortgage amount. This fee is unnecessarily high and adds to the increasing
difficulty of developing FHA-insured properties, especially during these challenging times of
inflation and elevated costs.
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
22
HUD loans also come with a significant list of fees both at closing and through the servicing of a
property. These fees are both costly and duplicative. For example, Mortgagee Letter 2013-13,
“Lender Delegation of Non-Critical Repair Administration,” clarifies that for projects when the
HUD lender is delegated responsibility for non-critical repairs, the inspection fee “… will be
waived if the total cost of repairs is less than $100,000. Otherwise, the inspection fee paid to
HUD may not be waived.” The Mortgagee Letter further states that the servicing lender must
engage a third-party inspector. Therefore, the borrower ends up paying an inspection fee for
both the third-party inspector who does the work, and HUD, who does not do the inspection.
These fees are not nominal, and often are more than $10,000. This policy is particularly
perplexing as HUD requires payment of a fee with no benefit or service provided.
The number of third-party reports required by HUD also goes far beyond what is required from
any other type of loan. These studies are very costly and time-intensive and often delay
construction for properties. Some examples of these reports include noise surveys, nesting bird
surveys, vibration studies, a fall study if properties are located proximate to certain free-standing
structures such as a water tower, cell tower, high voltage utility pole, a seismic engineering
report, a pipeline risk analysis, and more. Developers also are often required to provide “will-
serve” letters from schools, hospitals, and police and fire stations -- which duplicates what is
provided for or required in the zoning and permitting process.
Reconsider Program Requirements that Raise the Cost of Building Rental Housing
Lenders are very concerned about the new regulations creating new floodplain and energy
efficiency standards that will make FHA financing nearly impossible. These new rules rely on
government-provided Climate-Informed Science Approach (CISA) Maps, which have yet to be
created for most of the country. The new floodplain standard requires significant changes to site
development including a large amount of fill and increased elevations. Soil import from certified
fill sites may require additional transport costs if distances for such are farther from the site.
Earthwork and compacting costs of the additional fill may increase project costs above an
affordable level for the development. Based on our members’ conversations with builders, the
additional costs of construction are estimated to be between $10-15k per unit. The rule will also
likely hinder rehabilitation efforts for existing structures due to triggering elevation requirements,
which would be cost-prohibitive.
HUD last week also published new energy efficiency standards, which require all FHA-insured
properties to use the 2021 International Energy Construction Code (IECC) building standard.
HUD’s notice of preliminary determination in the Federal Register was based largely on a report
prepared for the U.S. Department of Energy. The report is widely flawed. For example, the
report determined that the simple payback period for the construction costs of the 2021 IECC
over the 2018 IECC averaged over 10 years nationwide, but their analysis of cost-effectiveness
is based on a 30-year period. This ignores important investment and construction cost
considerations by developers of rental apartments. Apartment investors work with much shorter
investment timeframes of 5-10 years.
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
23
Today, most states use energy codes that are effectively the 2009 IECC standard. The giant
leap in building standards up to the 2021 standard will significantly increase construction costs
and will simply price developers out of building their projects, further exacerbating the shortage
of multifamily housing development. Furthermore, since only 18 states currently use the 2021
building code, those states will not be prepared to enforce the new building code, adding delays
and costs in finding authorized building inspectors. FHA properties will face far higher costs than
any other properties due to this requirement, which will significantly impact the supply of new
affordable rental housing.
Property Insurance
Property insurance has become an acute issue in the commercial real estate market. Many
insurers and re-insurers have withdrawn from states (e.g., California, Florida, Texas, and
Louisiana) amid greater severity of wildfire and natural catastrophes that have led to widespread
property losses. MBA’s commercial member lenders have reported the need to either “force-
place” insurance or reduce lending due to the cost and availability of property insurance.
Property premiums in the U.S. continue to increase and are driven by continued losses, rising
costs in reinsurance, and limited new capacity from insurers. However, even with higher
premiums, insurance (and re-insurance) companies still face significant financial losses and
thus have withdrawn many of their offerings in high-risk areas.
To promote market stability and insurer solvency, MBA urges the Congress – on an individual
and collective basis – to work with insurance commissioners in their individual states, the
Treasury Department, HUD, FHFA, the White House, congressional committee leaders, and
other key stakeholders to address the availability and affordability of property insurance.
ACTIONS CONGRESS SHOULD TAKE
Congress could be instrumental in addressing the shortage of affordable and market-rate
multifamily housing in the U.S. For example, there are several bipartisan, bicameral tax
proposals – as well as bills that provide programmatic incentives for state/local governments –
that can help support an increase in affordable housing supply, benefiting low- and middle-
income renters and buyers and enhancing existing affordable housing programs and initiatives.
Affordable/Multifamily Housing
Legislation that would tackle the shortage of affordable rental units and address inflation
impacts includes:
• The Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) – The
Senate should swiftly consider this bill that the full House overwhelmingly approved by a
bipartisan vote of 357 to 70 in late January. The package includes important Low-Income
Housing Tax Credit (LIHTC) program enhancements that would help produce an
estimated 200,000 additional rental units nationwide by: (1) restoring a LIHTC ceiling
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
24
increase from 9 percent to 12.5 percent for calendar years 2023 through 2025, thereby
allowing states to allocate more credits for affordable housing projects; and, (2)
temporarily lowering the Private Activity Bond (PAB) threshold test from 50 percent to 30
percent for 4 Percent LIHTC property projects with an issue date before 2026.
• Affordable Housing Credit Improvement Act (AHCIA) – H.R. 3238, sponsored by Reps.
Darrin LaHood (R-IL) and Susan DelBene (D-WA) in the House, and S. 1557, sponsored
by Senators Maria Cantwell (D-WA) and Todd Young (R-IN) in the Senate, would expand
and strengthen the LIHTC by increasing the per capita dollar amount of the credit and its
minimum ceiling amount (extending the inflation adjustment for such amounts). The
proposal would address the nationwide affordable housing shortage by supporting the
construction of an estimated two million plus new affordable rental housing units over the
next decade, ensuring the program better serves a variety of at-risk and underserved
communities.
• Build More Housing Near Transit Act – S. 3216, sponsored by Senators Brian Schatz (D-
HI) and Mike Braun (R-IN), and H.R. 6199, sponsored by Rep. Scott Peters (D-CA) and
Cathy McMorris Rodgers (R-WA), would include incentives in targeted transportation
grants designed to increase mobility options and access to affordable housing.
• Housing Supply and Affordability Act – S. 3684, sponsored by Senators Amy Klobuchar
(D-MN) and Tim Kaine (D-VA), and H.R. 7132, sponsored by Reps. Brian Fitzpatrick (R-
PA), Lisa Blunt-Rochester (D-DE), and Joyce Beatty (D-OH), would create a new Local
Housing Policy Grant (LHPG) program administered by HUD, which would provide
grants to states, localities, tribes, and regional municipal and county coalitions to support
local efforts to expand housing supply.
FHA Statutory Loan Limits
MBA supports S.3682, sponsored by Senator Bob Menendez (D-NJ), a bill that would: (1) raise
the statutory loan limits for FHA-insured multifamily projects, and (2) change the future annual
inflationary adjustment from the Consumer Price Index (CPI) to the Price Deflator Index of
Multifamily Residential Units Under Construction (“Price Deflator”). The Price Deflator index is
released by the Census Bureau to accurately track inflation in residential construction.
• FHA’s base statutory limits define the amount of multifamily mortgages HUD will insure.
These mortgages are also capped by other factors such as debt service coverage and
loan-to-value requirements.
• FHA Multifamily statutory base limits have not been adjusted since 2003.
• Changing the inflation-adjustment index for these loan limits from the CPI to the Price
Deflator index (from 2003 to present), would mean that base limits for 2022 (and
beyond) would be 26% higher than the current levels.
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
25
Office Conversions
MBA supports incentivizing adaptive reuse of underutilized commercial properties. Prior Senate
legislation would have provided a 20 percent tax credit to convert qualified office buildings for
other uses, including residential use. This Congress, Rep. Jimmy Gomez (D-CA) has introduced
similar legislation, H.R. 419. MBA supports the Gomez bill, but would like to see it modified to:
enable other types of commercial properties (e.g., shopping centers and hotels) to qualify for the
tax incentive; ensure REITs could utilize the benefit; and, clarify that the credit does not reduce
other tax benefits, including the LIHTC program.
Workforce Housing/Middle-Income Housing Tax Credit (MIHTC)
MBA supports the Workforce Housing Tax Credit Act, bipartisan legislation introduced by Sens.
Ron Wyden (D-OR) and Dan Sullivan (R-AK) in the Senate (S. 3425), and Reps. Jimmy Panetta
(D-CA) and Mike Carey (R-OH) in the House (H.R. 6686). This proposal would establish a new
tax credit to produce affordable rental housing for households earning 100% or less of the area
median income (AMI). The Workforce Housing Tax Credit Act, which is designed to supplement
the highly successful LIHTC program, would address the housing shortage for individuals who
comprise the very fabric of strong communities nationwide, including teachers, firefighters,
nurses, and police officers whose wages are not keeping pace with costs.
YIMBY
MBA supports the Yes In My Back Yard (YIMBY) Act, bipartisan legislation sponsored by Sens.
Todd Young (R-IN) and Brian Schatz (D-HI) in the Senate (S. 1688) and Reps. Derek Kilmer (D-
WA) and Mike Flood (R-NE) in the House (H.R. 3507). The YIMBY Act would help eliminate
discriminatory land use policies and remove barriers that depress the production of housing in the
United States. By requiring Community Development Block Grant (CDBG) recipients to report
periodically on the extent to which they are removing discriminatory land use policies, and
promoting inclusive and affordable housing, the YIMBY Act will increase transparency and
encourage more thoughtful and inclusive development practices.
Other Key CRE Tax Considerations
Regardless of the 2024 election cycle outcomes, Congress must prepare for the 2025 expiration
of many key elements of Public Law 115-97, the Tax Cuts and Jobs Act (TCJA). MBA
commends the preparations that have already begun – on both sides of the political aisle – to
plan for that consequential debate.
In that vein, key provisions impacting the Section 199A small business “pass-through” deduction
against Qualified Business Income (QBI), bonus depreciation (leasehold improvements/qualified
improvement property), business interest deductibility (the Earnings Before Interest, Taxes,
Testimony of Jeffrey Weidell, CEO, Northmarq
House Committee on Oversight & Accountability
Subcommittee on Health Care & Financial Services
On Behalf of the Mortgage Bankers Association
April 30, 2024
26
Depreciation, and Amortization or “EBITDA” definition), and Opportunity Zones are all set to
expire (or have expired).
Other important provisions that could negatively impact CRE stakeholders, if either altered or
considered as part of the 2025 debate to pay for other changes to the tax code, include:
changes to the capital gains rate, the treatment of the Net Investment Income Tax (NIIT) as
applied to certain forms of income, Section 1031 Like Kind Exchanges, carried interest, cost
recovery (depreciation recapture), step-up in basis (taxing gains at death), certain partnership
tax reforms, and/or the taxing of yet-unrealized gains.
Given the crucial role CRE plays in the sustained health of the American economy, MBA will
continue to urge the Congress to carefully weigh the impact of any potential tax changes on the
appetite for continued investment in commercial real estate. We look forward to serving as a
resource to members of this subcommittee – and your colleagues in both the House and Senate
– as that debate begins to intensify in the coming months.
CONCLUSION
Thank you again for this opportunity to represent the MBA – and the commercial real estate
finance industry – and appear before you today to discuss CRE market dynamics.
Our association and its members look forward to collaborating with you and your offices to
advance the recommendations – both legislative and regulatory – mentioned within my statement.
I look forward to answering any questions you may have.
