A new bipartisan bill introduced in the House would help financially-strapped commercial property owners secure 3% government loans to pay their mortgages to avoid foreclosure in the face of the Covid-19 economic shutdown.

To prevent foreclosures and protect millions of jobs across the nation, Congressman Van Taylor (R-TX) introduced the Helping Open Properties Endeavor (HOPE) Act to establish a lending facility “to help these industries who were in good standing before this unforeseen crisis and through no fault of their own saw a significant drop in revenue due to the pandemic,” Taylor said in a statement.

The funding will be directed to businesses that borrowed in the $550 billion mortgage market. These mortgages are packaged into bonds and sold to Wall Street as collateralized mortgage backed securities (CMBS) debt via the newly created HOPE Preferred Equity lending facility.

The new program would be guaranteed by the U.S. Treasury Department and encourage financial institutions to originate preferred equity instruments with a 3% interest rate. Many of these borrowers have commercial mortgages whose loan covenants typically prohibit taking on additional debt. By providing preferred equity, these borrowers would be able to receive financial relief without violating their loan covenants, Taylor said in a fact sheet on the bill.

Eligible commercial borrowers must have experienced at least a 25% drop in revenue during any consecutive three-month period between March 1, 2020 and February 28, 2021, as compared to the same period last year.

The loans would be unsecured and provide no right of foreclosure. Borrowers would need to begin payment within two years of draw down, Taylor’s office said.

The commercial real estate market encompasses hotels, retail, multi-family housing, industrial and commercial property, and it supports millions of jobs throughout the U.S. Some 8.3 million jobs throughout the country, and more than 600,000 in Texas, are supported by the hotel industry alone, while the retail industry directly supports 29 million American jobs, Taylor’s office said in a statement.
While Congress and federal agencies provided assistance to many businesses experiencing financial hardship as a result of the pandemic’s economic shutdown, including the Paycheck Protection Program and Main Street Lending Program which have lent about $5.3 billion so far, these initiatives do not fit the needs of the commercial real estate market.

That’s because businesses with CMBS debt are governed by multi-party state law contracts which typically prohibit additional indebtedness, Taylor said.

Furthermore, CMBS borrowers have less flexibility to modify their loans since bondholders of CMBS trusts expect principal and interest payments to be maintained.

Senate Banking Committee Chairman Mike Crapo also wrote a letter on Friday urging the Federal Reserve and Treasury Department to expand the Main Street Lending Program by setting up commercial real estate and asset-based lending programs. 

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