It’s day 2 of Mark Zuckerberg’s Congressional debut and I still have yet to catch a glimpse of him or his entourage. But – I have had the opportunity, with some fellow industry players, CREFC staff and members of the CREFC-HVCRE Working Group, to meet and speak with members of the House Financial Services Committee (Andy Barr and Trey Hollingsworth), Senate Banking Committee staff and regulators from the FDIC, OCC and the Fed. The topic on hand: not Facebook or Russia, but HVCRE and HVADC.

So how did Zuckerberg and I end up on The Hill the same day? For those who have been too overwhelmed by the seemingly constant breaking news from the Capitol (remember when C-Span was boring?), before Congress was investigating what Facebook’s CEO had for lunch and what hotel he stayed at, they were debating the Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155), which passed in the Senate on March 14th. The bill eases many Dodd-Frank Act requirements and reforms HVCRE (FINALLY!). This revisions to HVCRE in S.2155 very closely follow HR 2148. Since passing in the Senate, the bill was welcomed by House Financial Services Committee Chairman Jeb Hensarling, who said he aimed to combine it with the House’s bipartisan banking bills and “get[] that combined bill to the President’s desk.” Sounds good to me, Jeb!

But – nothing involving Congress is ever that easy. With the Senate digging its heels in, the House’s insistence on amendments and talk from Democratic senators of their inability to support a revised (or slightly modified) S.2155 (ding ding, the mid-terms are coming!) it’s clear there is a long road ahead in terms of finding a set of amendments (and there probably has to be some in order to get the House to vote in favor of the bill) to S.2155 that will allow it to reach the President’s desk this year. And all of this- in the midst of the public revelation of prominent Republican retirements, including Paul Ryan.

Over the last two years or so (Wow – can’t believe it’s been that long already!), Marci Schmerler and I have co-chaired the CREFC-HVCRE Working Group. We’ve had the privilege of working with a variety of industry professionals, CREFC members and CREFC staff. So – after a big push at the end of last year to review and comment on HVADC and to follow and comment on revisions to the Pittenger Bill (HR 2148) and then in the wake of S.2155’s passage, I welcomed the opportunity to meet with members of Congress and their staff, as well as regulators, in order to clarify and support our position on HVCRE reform and HVADC.

In a nut shell –

  • Less is more! We need one HVCRE regime that applies to all banks (not two or more competing regimes).
  • The “one” needs to be tailored and narrow! That one regime needs to make sense. It needs to be clear (or at least clearer than what we have) so that it can be consistently and (more or less) uniformly interpreted, applied and enforced, thereby ensuring an even playing field for all banks and the borrower community at large.
  • The devil we know is the devil we want! Stick with HVCRE (we’ve been living with it since 2015); work to clarify and simplify it (not impose an entirely new regulatory regime).
  • Don’t fall down on the 5 yard line! It’s all about the roll out – grandfathering and transition rules: an often over looked piece of rulemaking and legislating but one that’s of primary importance to anyone who has to actually implement changes. Let’s come up with a common sense and practical path that allows banks (and the borrower community) time to adjust in a methodical and practical way – hopefully saving time, money and energy.

On a final note – I want you to think back (way back) to 2015 and the HVCRE FAQs. The regulators provided guidance (as they normally do) about what certain aspects of the HVCRE rule mean through a series of FAQs. These FAQs aren’t actual rules but historically would have had (generally) the same effect.  On January 25th, the Justice Department issued a notice to federal agencies making it clear that the Justice Department will not use its enforcement authority to turn guidance into binding rules. What does this mean for HVCRE? Are the FAQs binding? Does it mean the regulators will ever clarify the rule with more FAQs which in turn have no force of law? What’s the point of guidance? What does this mean for health care? Other industries? Are we witnessing the death of guidance from regulators?

S.2155 is not perfect…but it’s good enough. Certainly, now is not the time to let the perfect be the enemy of the good. Lawmakers take heed and pass reform!