Deja Vu: Mid Term Election Edition

CRE Finance World, Winter 2014

Deja Vu: Mid Term Election Edition Risk Retention Redux n a sleepy day this past August, the White House re-proposed their long-awaited risk retention rule that includes significant revisions to their 2011 proposal. As we wrote for the fall issue, the re-proposal was largely in line with our expectations. Specifically, the elements of 5% retention of “fair value” (versus par value), B-piece transferability restrictions for the first 5 years, revamped qualified mortgage rules and modifications to the operating advisor sections were largely expected. CREFC has now formally filed our comment letter. The process by which we responded to the regulators stands as a very real testament to our members and their willingness to engage on matters of profound impact on the industry. Policy Committee Chairman Bob Foley and our entire retention response team did yeomen’s work to parse the proposal, analyze the provisions and drive toward consensus. Our letter spoke from a consensus standpoint and has given us unimpeached credibility with the regulators in subsequent meetings in providing them with impact analysis. More recently, we have begun the process of formally visiting with the regulators. We have enjoyed personal meetings with the Departments of Treasury and Housing, the Federal Reserve, the SEC, the OCC and the FDIC. At press time, we are still pursuing meetings with the White House and FHFA. Significant issues that our letter focused on, and CREFC advocated for, included: • Exemption from retention requirement for Single Borrower/Single Credit deals; • Increasing quorum threshold to remove special servicers from 5% to 20% (with a minimum of three separate investors voting); • Revising Qualified CRE parameters for exemption eligibility to allow for inclusion of prudent loans made according to industry norms, not arbitrary or anecdotal levels; and • Allow for senior/subordinate structure option for B-piece retention. We expect the rules to be finalized sometime around the middle of Q1 2014. From that date, CMBS issuers will have two years to be in compliance with the new rules. CRE Finance World Winter 2014 6 For a candid recap of the each of the meetings’ tone and relative friendliness of the regulators, please feel free to contact Christina Zausner or Marty Schuh directly. Terrorism Risk Insurance: TRIA Watch Another issue of CRE Finance World would not be complete without the discussion of the authorization of the TRIA program. Readers will recall the vital program expires at the end of 2014. There is encouraging news, however. CREFC and some of our industry colleagues were briefed by the Chair and Ranking Member staff from the Senate Banking Committee. We were informed that the two sides are working together on a bipartisan reauthorization. While the timing might not be ideal — we anticipate nothing will materialize until at least late Q1 2014 — we were reassured that the committees are working on the issue. Further complicating the timing issue is the 12-month policies that are currently rolling over in the new year. These policies will be exposed at the tail end depending on when the TRIA program is formally reauthorized. However, the most significant impediment to passing something timely is the Chairman of the House Financial Services Committee who is an avowed opponent to the program. He opposes the government intervention in what he sees as a purely private market. Currently, there are three bills introduced to reauthorize TRIA. Rep. Michael Grimm’s (R-NY) H.R. 508 is currently the most active bill with nearly 80 bipartisan co-sponsors. We view this as a Congressional barometer for interest for passing a reauthorization. Further, we believe that the House already has a majority that would vote to pass if given the chance. Grimm’s bill would keep program as is and extend for another five years (until 2019). Two other Members, Michael Capuano (D-MA) and Bennie Thompson (D-MS), have offered 10-year extensions, although neither is likely to be considered since they came from Democrats and haven’t received committee attention. We view the odds of some type of extension passing at over 90%, but details on insurance participation and retention levels are still being worked out. Most likely on the table for modification during this reauthorization are the certification process by the Treasury Secretary (which most agree is ambiguous and needs clarification), the minimum event threshold ($5 million) and the program retention level ($100 million). We expect a reauthorization of between 3 and 6 years to emerge when all is said and done. O Martin Schuh Vice President, Legislative and Regulatory Policy CRE Finance Council


CRE Finance World, Winter 2014
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