The Mortgage Bankers Association (MBA), in a statement of record to the House Financial Services Committee, submitted comments about risk retention and Basel III.
MBA was invited to submit a statement for a committee hearing on Who's In Your Wallet: Examining How Washington Red Tape Impairs Economic Freedom. The comments covered both commercial/multifamily and residential issues.
The comment letter said the banking regulatory agencies' August 2013 reproposal of an April 2011 proposed risk-retention rule was responsive to many of MBA's initial concerns, such as eliminating a "highly problematic" Premium Cash Capture Reserve Account, which would have jeopardized the commercial mortgage-backed securities market by eliminating the financial incentive to issue CMBS.
However, MBA raised the following concerns with the reproposal:
The eligible horizontal risk-retention interest recovery percentage, as proposed, would severely limit cash flow to horizontal risk-retention holders. "Given the waterfall structure of CMBS cash flow, this provision is unworkable and should be withdrawn," MBA said.
The agencies should allow additional flexibility in the risk-retention structure by allowing the horizontal risk-retention position to be split into senior and subordinate positions, in addition to the pari passu arrangement permitted in the reproposal. This would provide greater flexibility for existing market participants to assume the 5 percent horizontal risk-retention position.
The underwriting parameters for a "qualified commercial real estate loan" should be expanded to include mortgages with a 30-year amortization period, adding consistency to existing lending practices.
Given their very strong underwriting characteristics and strong market performance, single-asset and single-borrower CMBS should be...