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CRE Finance World, Summer 2014

Why this matters. Should the Republicans re-take the Senate it would set off a shuffling of Committee gavels. For instance, Senate Banking Committee Ranking Member Mike Crapo (R-ID) would likely be displaced by former chairman Richard Shelby (R-AL) who has two years left in his eligibility as chairman. (Republican Chairman has term limits) Shelby has historically been more in the mold of House Financial Services Committee Chairman Jeb Hensarling (R-TX) — more to the right of most of his colleagues on the committee and less inclined to move legislation such as TRIA. Legislative Progress Seen on Key CREFC Issues Unlike last year, where there was lots of media attention paid to legislation that ultimately didn’t get very far, this year has seen its share of progress. We remain focused on the TRIA front, and have been educating Hill staff on GSE reform issues related to multifamily finance. To these issues, we finally have legislative framework from both chambers in a somewhat coordinated fashion. TRIA Reauthorization Unveiled in Senate and House. At long last, the leaders from the Senate Banking Committee and House Financial Services Committees have unveiled their discussion drafts and legislative text for the program’s renewal. In the Senate, lead sponsors Chuck Schumer (D-NY), Mark Kirk (R-IL), Dean Heller (R-NV) and the retiring Mike Johanns (R-NE) propose reauthorizing the program for an additional seven years (until 2021). Over in the House, Chairman Jeb Hensarling and subcommittee chair Randy Neugebauer (R-TX) have proposed a three-year extension, but with major modifications to the framework of the program. TRIA has been a victim of sorts, stalled by committee attention elsewhere: in the Senate, focus on GSE reform and in the House, focus on fixing the troubled flood insurance program. Both chambers proposed changes to the program. The Senate version offers a generous seven-year extension, but increases coinsurance levels from insurance providers to 20% (from 15% currently) and the House ratcheted up the share to 25%. The House version also lowers the program cap to $75 billion from $100 billion, thereby decreasing insurance company participation under a large loss scenario. CRE Finance World Summer 2014 14 The House bill also contracts with the Senate version by bifurcating the coverage into two categories. The current program is retained for events in a nuclear, biological, chemical or radiological (so-called “NBCR”) event. For non-NBCR events, new program limits on government participation are imposed. We expect a host of changes to the proposal in the House before all is said and done, due to Democrats in the Senate likely balking at the amount of tweaking done in the House version. The good news is that we now have all parties agreeing that the program warrants reauthorization a major victory compared to where we were at this point last summer. And don’t be surprised to see an amendment added to the TRIA package that would tweak what’s known around town as the “Collins Amendment.” Added during Dodd-Frank, it granted the Federal Reserve authority to prudentially regulate large systemically important insurance companies. Bipartisan GSE Reform Effort Unveiled. The Senator Banking Committee Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo finally introduced their GSE Reform bill. The major components of the bill: 1) wind-down the entities over 5 years; 2) put private capital before taxpayers in the loss hierarchy; and 3) establish an FDIC-like entity that will guarantee the bonds, not the issuing entities as is now the case. Why this is important even if it doesn’t move. Whether or not the bill is passed by the full Senate or House likely won’t be known before this year’s CREFC June Conference. What is important about this effort, however, is that it will likely be the starting point for any future bipartisan attempts — even if it is during the next Congress. Importantly — and unlike the previous Corker-Warner approach — the GSEs’ multifamily platforms have a discreet resolution. Johnson-Crapo maintains Fannie Mae’s DUS and Freddie Mac’s K-Series as they are currently. Their multifamily units will be spun off from the enterprises in the coming years (within five) and be capitalized with private funds. The Corker-Warner proposal of a 10% first-loss requirement for private capital in RMBS deals is maintained in the Johnson-Crapo proposal (despite calls to lower the threshold). Mid-Year 2014 Legislative and Regulatory Update


CRE Finance World, Summer 2014
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