Public Policy Network (PPN) Newsletter
Washington Policy Update 
Housing and Economic Development Update

August 2018

August 2018 - In This Issue:

Congressman Rothfus speaks at the ribbon cutting for Pitt Cycles
PPN Quarterly Call on Sept. 18
Join us for the next PPN quarterly conference call at 10 a.m. on Tuesday, Sept. 18. 

In just 30 minutes, you will receive updates on major legislation and learn more about the impact of the midterm elections on the agenda.

Click here to register.

Congressman Rothfus Joins Celebration of Small Business Success

Rep. Keith Rothfus (R-Pa.12) was the special guest speaker at a ceremonial ribbon cutting at Pitt Cycles, home to Indian Motorcycle of Pittsburgh & KTM of Pittsburgh, a new motorcycle dealer in Warrendale, Pennsylvania. In 2016, owners Mike Cartney and Bill Obaker embarked on a journey to implement their vision for an upscale motorcycle dealership that not only provided the motorcycling community with opportunities to purchase premium motorcycles, accessories and services, but also served as a destination for camaraderie among those who want to share their passion for motorcycling.
At today's event, lenders, economic developers and other guests toured the company's new facility. In addition to Rep. Rothfus, guests included Chuck Leyh, President and CEO, Enterprise Bank; Rebecca MacBlane, Executive Director, Regional Development Funding Corp; Matt Blackburn, Western PA Director, the office of U.S. Senator Pat Toomey; Sara Bresnahan Kennedy, District Director,office of State Rep. Mike Turzai; and Winthrop Watson, President and CEO, Federal Home Loan Bank of Pittsburgh.
"This is a day we envisioned for a long time and are thrilled to have so many partners and friends here to help us celebrate," said Bill Obaker. "We look forward to providing the highest-quality buying experience for motorcycle enthusiasts for years to come."
Rep. Rothfus added, "It is my pleasure to celebrate the opening of Pitt Cycles and welcome another small business to our area. I also want to thank the partners and other small business community members here today who helped make this all possible. It is encouraging to see federal, state, and local government as well as the private sector working together to help small business again thrive in our community.
The event was hosted by FHLBank Pittsburgh, which provided a portion of the pivotal funding to finance the new business through its Banking On Business (BOB) program. Enterprise Bank, a member of FHLBank Pittsburgh, secured the BOB funding on behalf of Pitt Cycles and provided an additional loan to finance the business purchase. Enterprise Bank also partnered with the Regional Development Funding Corporation to provide an SBA 504 loan. The 504 program is an economic development tool to create jobs and provide long-term fixed-rate financing for small businesses.
BOB helps eligible businesses create or retain jobs. For small businesses that may not qualify for traditional commercial loans, BOB provides secondary loans to help them meet lending standards. Since its inception in 2000, BOB has provided more than $65 million in funding, saving or creating 8,970 jobs at 708 businesses.  
In speaking of FHLBank Pittsburgh's commitment to economic development, President and CEO Winthrop Watson said, "We are pleased to join our member Enterprise Bank and Congressman Rothfus in celebrating the opening of this small business in Warrendale. Every day, we work with our member financial institutions and local community leaders to make a difference in housing, jobs and a strong local economy."

Washington Policy Update
August 2018
Peter E. Knight

Labor Day holds a special place on election-year calendars because that is when many voters start to lock in their candidate preferences. However, as everyone in politics learned in 2016, many of the accepted dynamics of previous elections may no longer apply. That is why all the so-called "experts," who were so spectacularly wrong in 2016, are more cautious in their predictions this year than they have been in the past. Maybe voters will remain up for grabs until Halloween, or maybe they have already decided whom they like. One thing we do know already, the experts will tell us after the election that they knew what the outcome would be all along.
Congress resumes after Labor Day with only days to finish months' worth of work. At the top of the list are spending bills for a full range of government responsibilities, from national defense to crop support to infrastructure and housing. The uncertainty of the looming elections will incent some legislators to delay votes that could potentially hurt them at the polls on Nov. 6. Others will delay certain votes until their party has a stronger position (possibly) in Congress after the elections. Temporary spending bills will likely fund all or part of government when the 2018 fiscal year ends on Sept. 30. This mid-term election will mark the unofficial start of the 2020 presidential election. Who says we don't have constant campaigns in this country?
Congressional Budget Office (CBO) Reviews Government-Sponsored Enterprise (GSE) Reform
On Aug. 23, CBO, the nonpartisan budget office of Congress, updated its 2014 "Transitioning to Alternative Structures for Housing Finance" report. The report examines four different models that could replace the existing housing finance system. With no GSE reform in sight, a central conclusion of this CBO paper highlights the political difficulty in enacting potential reform. The paper notes that different reform options could result in different outcomes: slightly higher interest rates and slightly lower home prices under normal conditions, or significant constraints on the availability of mortgages and higher interest rates due to a financial crisis.
Three of the models examined by CBO employ some form of an explicit federal guarantee of mortgage-backed securities (MBS), where the government would bear most of the risk in the event of a financial crisis. The report recognizes that under the model with no explicit guarantee, some type of government intervention might be necessary to stabilize mortgage markets during a financial crisis.
Under the current structure, CBO estimates the GSEs will guarantee almost $12 trillion in new MBSs over the next 10 years, and that those guarantees will cost the government about $19 billion on a fair-value basis. That cost represents the estimated amount that the government would have to pay private guarantors to bear the credit risks of the new guarantees. This estimate is the same as CBO's 2014 estimate.
CBO's approach to analyzing the cost to taxpayers of the implicit guarantee of Fannie Mae and Freddie Mac differs from that of the Office of Management and Budget (OMB), which is the budget expert for the administration. OMB only records cash transfers between the Treasury and the two GSEs, including payments to the Treasury. The balance of capital support, provided by the Treasury to Fannie Mae and Freddie Mac since they were placed into conservatorship in 2008, currently stands at $187 billion. The GSEs have already paid Treasury $271 billion.
Office of the Comptroller of the Currency (OCC) Seeks Comment on Community Reinvestment Act (CRA) Changes

On Aug. 28, the OCC, the regulator of national banks and federal savings associations, issued an advance notice of proposed rulemaking seeking comments on possible changes to the CRA, the federal law that requires banks to meet the credit needs of all communities they serve, including low- and moderate-income neighborhoods. The OCC stated it "seeks stakeholder comment on ways to modernize the regulations that implement the CRA, in order to better achieve the statute's original purpose, increase lending and investment where it is needed most, and reduce the burden associated with reporting and assessing CRA performance." The OCC seeks public comment on the following areas:

  • Increasing lending and services to people in areas that need it most
  • Clarifying and expanding the types of activities eligible for CRA credit consideration
  • Revisiting how assessment areas are defined and used
  • Making bank CRA performance more transparent
  • Reducing the cost and burden related to evaluating performance under the CRA
The 75-day comment period will be followed by OCC analysis and recommendations for changing the regulation in conjunction with the other bank regulators. Any proposed changes to the regulation would also have a comment period.

FDIC Releases Second Quarterly Banking Profile (QBP)
On Aug. 23, the FDIC released the QBP. Items of interest include:
  • 5,542 FDIC-insured commercial banks and savings institutions reported net income of $60.2 billion during the quarter, an increase of 25.1 percent from a year earlier.
  • The Deposit Insurance Fund reserve ratio is the strongest it has been in 14 years. The reserve ratio (the fund balance as a percent of estimated insured deposits) was 1.33 percent on June 30, 2018, up from 1.24 percent a year ago and the highest since March 31, 2004. By law, the reserve ratio must reach a minimum of 1.35 percent by Sept. 30, 2020.
  • Banks with less than $10 billion in assets will receive credits to offset the portion of their assessments that helps to raise the reserve ratio from 1.15 percent to 1.35 percent. When the reserve ratio is at or above 1.38 percent, the FDIC will automatically apply a small bank's credits to reduce its regular assessment, up to the entire amount of the assessment.
  • Banks with over $10 billion in assets are subject to a temporary surcharge of 4.5 basis points. Surcharges began in the third quarter of 2016 and will continue through the quarter in which the reserve ratio first meets or exceeds 1.35 percent. If the reserve ratio has not reached 1.35 percent by year-end of 2018, large banks will pay a shortfall assessment.

Congressman Doyle Helps Celebrate $1.8 Million in Homeownership Grants

U.S. Rep. Mike Doyle (D-Pa.14) was the special guest speaker at a community celebration held in Pittsburgh. The event highlighted the importance of affordable housing and homeownership to driving community revitalization. The celebration included Affordable Housing Program (AHP) grant presentations totaling $1,834,455; comments from homeowners, including a first-time homebuyer helped through the First Front Door (FFD) program; and a special presentation to the homeowners.
The AHP funds were provided by FHLBank Pittsburgh and its member financial institutions First Commonwealth Bank and Brentwood Bank. The funding was awarded to two local organizations that support community development - Hazelwood Initiative, Inc. and Rebuilding Together Pittsburgh. The AHP grants are being used to assist with home purchases and owner-occupied rehabilitation. The FFD funds were provided by FHLBank Pittsburgh and First Commonwealth to help with home down payment and closing costs.

"It is great to be here and see so many partners working together to help those in our community achieve and maintain homeownership," said Rep. Doyle. "Homeownership is essential to a vibrant community because it helps individuals and families have safe, affordable places to live and thrive. I want to thank FHLBank Pittsburgh, together with its members and housing partners, and wish the homeowners all the best."
In addition to Rep. Doyle, participants included Winthrop Watson, President and CEO, FHLBank Pittsburgh; Mike Price, CEO, First Commonwealth Bank; Tom Bailey, President and CEO, Brentwood Bank; Steve Hellner-Burris, CEO, Rebuilding Together Pittsburgh; Sonya Tilghman, Executive Director, Hazelwood Initiative, Inc.; and several homeowners.
"It is wonderful to learn about how much these organizations have accomplished and hear the inspiring stories of homeowners," said Winthrop Watson, FHLBank Pittsburgh President and CEO. "We are privileged to join our members Brentwood Bank and First Commonwealth Bank in making additional grant funding available to these organizations to continue helping our Pennsylvania neighbors."
Annually, FHLBank Pittsburgh sets aside approximately 10 percent of its net income to fund AHP. AHP supports projects that provide affordable housing to individuals and families whose incomes are defined as low (51 to 80 percent of area median) or very low (50 percent of area median and below). FHLBank Pittsburgh also offers FFD, which provides grants for qualified first-time homebuyers to assist with down payment and closing costs.