On Monday (March 22, 2010), the Senate Banking Committee voted along party lines and passed the "Restoring American Financial Stability Act of 2010" (with a 13 to 10 vote). So, Senator Dodd's financial reform bill makes its way out of the Senate Banking Committee. And now the bigger battle begins.
But not before Committee members filed 473 amendments to the already lengthy bill (1336 pages).
Fortunately for us, the CMSA has updated its summary of the provisions of interest to its members.
Like the Commercial Mortgage Securities Association (CMSA), the Mortgage Bankers Association (MBA) has circulated a short summary of the bill, which focuses (as it should) on issues important to its membership. (Note my blog last week covered the CMSA's initial summary of the bill). The MBA's summary focuses on securitization, and attempts to revive the CMBS market (commonly referred to as "CMBS 2.0").
Succinctly stated, the MBA believes that "the market already has retained risk embedded in its structure and risk returns. In addition, we will underscore our position that an uniform approach to risk retention can create unintended consequences and stymie further efforts toward economic recovery."
Here is the MBA summary, as it focuses on those two positions:
- Reduces risk retention from 10% to 5%
- Requires separate rules for different asset classes - residential, commercial loans, etc.
- Provides for exemptions, exceptions and adjustments of risk retention for assets that are deemed to have high quality underwriting and in the public interest.
- The Federal Banking agencies (the OCC and the FDIC) and the Securities and Exchange Commission (SEC) are required to jointly prescribe regulations to mandate that any securitizer retain an economic interest in a material portion of the credit risk for any asset through the issuance of an asset-backed security (ABS) that is transferred, sold or conveyed to a third party
- These regulations must: 1. Prohibit a securitizer from directly or indirectly hedging or transferring credit risk that the securitizer is required to retain with respect to an asset; 2. Require a securitizer to retain: a. not less than 5% of the credit risk for any asset that is transferred, sold or conveyed through issuance of an ABS by the securitizer; b. less than 5% of the credit risk for an asset that is transferred, sold or conveyed through issuance of an ABS by the securitizer if the originator of the asset meets the underwriting standards that must be established by the regulator that specify the conditions, terms and loan characteristics within each asset class that indicate a "reduced credit risk" with respect to the loan; 3. Specify the permissible forms of risk retention and the minimum duration of the risk retention, 4. Apply regardless of whether the securitizer is an insured depository institution, and 5. Provide for: a. a total or partial exemption of any securitization as may be appropriate in the public interest or for the protection of investors; and b. the allocation of risk retention obligations between a securitizer and an originator in the case of a securitizer that purchases assets from an originator, as the Federal banking agencies and the SEC jointly deem appropriate.
- The definition of an originator is "a person who sells an asset to a securitizer."
- The effective date of the regulations would be 2 years after the publication date for the commercial market.
Click here for a copy of the MBA's press release covering its position on that the bill needs a more explicit risk retention exemption for mortgages [download] and for a copy of the MBA's summary of the risk retention provisions in the bill [download].
After the tough battle over health care, it will be beyond interesting as we watch Congress go to the mat over financial services reform - and hopefully legislation that supports recovery of the CRE finance markets and the economy.
If you have any comments or questions, please post a comment below.
