By Erin Stackley

REGULATORY REFORM IN THE 115TH
CONGRESS

LEGISLATIVE UPDATE Before his first 100 days were up, President Trump made it clear that one his priorities to roll back regulations from the federal agencies. He has spoken broadly about the need to scale back the administrative agencies role in governing the country, and specifically singled-out targeted areas – for example, regulations on financial institutions created under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

To accomplish this, the President has
signed several executive orders that
reign in regulations. Through them, he
has created “Regulator Reform” offices
within each federal agency, directed
to review existing regulations and rec-
ommend ones for repeal; required
that for every one new regulation an
agency proposes, it must identify two
to repeal; and capped spending on
new regulations at $0. He has also re-
leased executive orders directing the
Secretary of Treasury to review existing
regulations on the financial system, and
signed memos directing rolling-back
Dodd-Frank. Members of Congress as
well – particularly Republicans – are
eager to repeal certain regulations, or
better tailor them to accomplish their
goals.

So, what does this mean for commercial real estate? Scaling back certain regulations could result in some positive effects for commercial real estate. For example, Congress passed Dodd-Frank in response to the financial crisis of 2007-2008, with the aim of reforming the country’s financial system to prevent a future event like that from occurring. Its administration involves several federal agencies and has resulted in several hundred regulations. The resulting compliance costs have caused many regional and community banks to scale back their lending operations, as they do not have the resources to keep up with them the way that a large bank does - despite the fact that these smaller lenders were not at the root of the financial crisis that spurned the legislation. Local and community banks are top sources of capital for NAR’s commercial members, so this trend is troubling for them and makes it difficult for their clients to get financing.

Regulatory reform that scales back
and tailors the Dodd-Frank regulations
could provide some relief to those
smaller lenders, and translate into
more lending to commercial real es-
tate. While the Treasury carries out its
review of the regulations, Congress
has already begun to act, introducing
bills that will better tailor and clarify
certain regulations impacting financial
institutions. One such bill is H.R. 2148,
“Clarifying Commercial Real Estate
Loans,” introduced by Representative
Robert Pittenger (R-NC). This bill would
clarify the regulations that created
the “High Volatility Commercial Real
Estate” (HVCRE) risk-weight category
for lenders. This category currently
includes commercial acquisition, con-
struction, and development (ADC) loans,
which are assigned a risk-weight of 150
percent, up from the pre-rule level of
100 percent. This makes commercial
loans less attractive than other types
with lower risk-weights, and especially
difficult for smaller lenders to take on.
Rep. Pittenger’s bill will clarify the rule
and which loans its applies to, hopefully
providing some relief for local and com-
munity banks.