The House-Senate Conference Committee on financial reform legislation has finalized several provisions that have been top priorities for the CRE Finance Council. The finalized provisions reflect amendments authored by Sen. Mike Crapo (R-ID) that now enable regulators to customize the new risk "retention" mandate for commercial real estate finance, and another measure offered by Rep. Scott Garrett (R-NJ) that requires regulators to consider the combined impact of new reforms and mandates, prior to any rule-making, and that encourage greater coordination among policymakers.
The risk "retention" language passed by the Conference Committee largely tracks a Senate-passed amendment offered by Sen. Crapo. It enables U.S. regulators to determine how to strengthen the commercial real estate finance market—including through a "percent" retention; underwriting guidelines and controls, and stronger "representations and warranties." Under the provision, regulators must structure reforms by asset class, and they have explicit authority to consider allowing a "third-party investor" (in addition to the "securitizer" or "originator" of loans) to satisfy a potential retention mandate for commercial mortgage-backed securities, as long as any such third-party investor performs due diligence, purchases a first-loss position and retains this risk in accordance with the statute.
The Conference Committee also adopted a CRE Finance Council-supported amendment offered by Rep. Garrett that would require financial regulators to examine and report on the combined impact of new accounting standards (FAS 166 and 167) and other regulatory changes, such as a "retention" mandate, on credit availability, prior to any rulemaking. Under the provision the Federal Reserve, working with other agencies, would have 90 days to report its findings to Congress with recommendations on statutory and regulatory changes that could be made to lessen the impact on credit availability. The CRE Finance Council has been concerned about the totality of legislative, regulatory and accounting reforms, and this provision would ensure greater consideration by, and coordination between, implementing regulators on the growing number of proposals across the various jurisdictions.
For more information, visit www.crefc.org.