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CMSA applauds house 'retention' amendment to financial reform bill
Nov 19, 2009

The Commercial Mortgage Securities Association (CMSA) has applauded Reps. John Adler (D-NJ), John Campbell (R-CA), Dennis Moore (D-KS) and Gary Miller (R-CA) for working on an amendment offered by Reps. Walt Minnick (D-ID) and Melissa Bean (D-IL) to the House Financial Services Committee financial regulatory reform bill that passed the Committee unanimously and would support a recovery in the commercial mortgage-backed securities (CMBS) market and the overall commercial real estate sector. The amendment reduces the maximum 'retention' (or 'skin-in-the-game') requirement from 10 percent to five percent and includes language that would customize retention provisions to reflect the unique nature of the CMBS market, which utilizes a third-party investor who purchases the first-loss position and re-underwrites all loans during the pre-issuance period. CMSA has urged policymakers to structure retention provisions carefully in order to maintain and strengthen the safeguards that exist in the CMBS market by explicitly recognizing the important role of third-party investors who purchase the first-loss position and perform due diligence. CMSA is strongly encouraged by the House Committee’s approval of the Minnick amendment that would not preclude retention by the originator/issuer, but instead grant additional flexibility to allow a third-party investor to satisfy the retention requirement. 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. The retention issue – which has been a top priority for CMSA – is of particular concern in light of new accounting standards, FAS 166 and 167, which could result in significantly less credit availability. In this regard, the House Committee also approved another amendment – offered by Rep. Scott Garrett (R-NJ) and supported by CMSA – that would require the Federal Reserve and financial regulators to examine the combined impact of new 'retention' requirements and accounting standards on credit availability, and to report to Congress with specific recommendations prior to any rulemaking on the retention. “Considering the challenges facing commercial real estate, these reforms must provide certainty and confidence for all market participants to help kickstart the lending markets,” said Patrick C. Sargent, president of CMSA. “Tailoring retention language to support, rather than impede, the CMBS market is absolutely critical to recovery efforts in commercial real estate and our overall economy.” “We urge financial policymakers in Washington to maintain and strengthen safeguards in the CMBS market by structuring the ‘skin-in-the-game’ requirement to incorporate third-party investors who purchase the first-loss position, perform due diligence and retain this risk,” he said. The overall legislation, known as the Financial Stability Improvement Act of 2009 (HR 3996), is expected to move to the House floor in December after the House Financial Services Committee completes its consideration today. For more information, visit 
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