The Commercial Mortgage Securities Association (CMSA) has announced its support of the introduction of covered bond legislation brought forth by key members of the House Financial Services Committee – Capital Markets Subcommittee Ranking Member Rep. Scott Garrett (R-NJ), Chairman Paul Kanjorski (D-PA), and Ranking Member Spencer Bachus (R-AL).
The facilitation of a U.S. covered bond market is an important item in CMSA’s efforts to provide liquidity and new sources of capital for commercial real estate that will help support a recovery in this sector today and a more robust sector in the future.
As part of its support, in December, CMSA was invited as a select witness to provide testimony before the House Financial Services Committee on this issue. During this hearing, the association outlined how covered bonds could serve as an additive financing tool for the market that would help raise much needed capital to fund commercial real estate loans and, in turn, ease the current the downturn, which persists in certain forms.
Covered Bonds originated in the European bond market and are debt securities backed by cash flows from mortgage and public sector loans. Assets from covered bonds, which normally carry a two- to 10-year maturity rate and include high credit ratings, are kept on the issuer’s balance sheet.
Significantly, the newly introduced legislation includes commercial mortgages and CMBS as eligible collateral, as CMSA has promoted. Today, commercial debt is permitted in covered bond pools in most European jurisdictions, and CMSA believes any U.S. covered bond framework should ensure that U.S. financial institutions, consumers and borrowers have a level playing field and equal credit opportunities.
Earlier this month CMSA issued a paper, “A Framework for a Sustainable Commercial Real Estate Recovery,” where, among several items, the association discussed the economic possibilities that exist with covered bonds. In “Framework,” CMSA said policymakers should create a regulatory environment that includes covered bonds utilizing commercial mortgages and CMBS as eligible collateral. CMSA said this market has found great success in Europe and, over time, could generate new capital through the sale of covered bonds secured by high-quality commercial mortgage loans and CMBS.
“U.S. Covered Bond Act of 2010,” is now available as well as a summary and section-by-section analysis of the bill by clicking here.
For more information, visit www.cmsaglobal.org.