CMSA Submits Letter to House Financial Services Cmte in Advance of Hearing

CMSA and a coalition of commercial real estate-focused trade groups submitted a letter this afternoon to the House Financial Services Committee (HFSC) in advance of its full hearing Thursday at 9:30a.m. ET, “Systemic Regulation, Prudential Matters, Resolution Authority and Securitization.”  The coalition letter urges the committee to customize securitization regulatory reforms accordingly, and to maintain and strengthen safeguards in the CMBS market in order to support a recovery in the broader commercial real estate market.

Additionally, last night, the House Financial Services Committee released a discussion draft of legislative language which is expected to be discussed at tomorrow’s hearing that addresses systemic risk, “too big to fail” institutions, risk retention, suspensions of reporting, loan level reporting, and representations and warranties. 

While CMSA is still reviewing this discussion draft, we would highlight a provision that would require risk retention at a base level of 10% (with a minimum 5% retention if an underwriting/due diligence standard is met), as well as a prohibition on hedging the retained position.  While exemption authority is included in the draft bill, these provisions are of particular concern when combined with new accounting standards, FAS 166 and 167, which could result in significantly less credit availability.

As such, CMSA has proposed provisions that would not preclude retention by the originator/issuer, but that would grant additional flexibility to allow a third-party investor to satisfy the retention requirement, given this unique feature of the CMBS market.  However, if market participants choose to utilize this method, the third-party purchaser would be obligated to retain the associated credit risk for its first-loss position in those asset-backed securities. 

Financial Regulatory Reform is a priority for CMSA and we will continue to keep you updated as new developments occur.  In the meantime, please visit our Current Capital Markets Relief Efforts webpage or contact Brendan Reilly, Vice President, Government Relations, if you have any questions or comments.