The Commercial Mortgage Securities Association (CMSA) and the Real Estate Roundtable jointly submitted a comment letter on the Basle II accord to the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Office of Thrift Supervision.
CMSA and the Roundtable offered their comments to supply the different agencies with important data as they reconsider the proposed rule’s, the two organizations said in a release. The empirical data was provided by the three rating agencies and other major market participants.
According to the CMSA and the Roundtable, the proposed rule could require CMBS classes to carry significantly greater risk-based capital than either corporate loans or CRE mortgage loans. The letter also stated that the evidence suggests that rated CMBS classes have performed better than other types of similarly-rated securities.
CMSA and the Roundtable said that they would like the agencies to address two major issues. The first is the disadvantaged and asymmetrical capital treatment of non-investment grade CMBS versus non-investment grade corporate bonds. The second is the inconsistent application of the RBA approach for banks originating loans, securitizing the loans and retaining a class of the securitization compared to those banks investing in third-party originated securitizations.
There are also concerns about the impact the New Accord could have on bank lending to the commercial and multifamily real estate sector. The Roundtable thinks all commercial and multifamily real estate (including 1-4 family properties) should receive a single risk weight treatment based on the low asset correlation approach. The commercial banking industry, as well as the industries it serves, must not be penalized for risks that are not in evidence, said the letter.
The letter also stated that commercial banks are the primary suppliers of acquisition, development and construction (ADC) loans in the U.S. Increased capital charges for ADC loans would result in significant loan pricing increases to real estate borrowers that might negatively impact market liquidity and valuations.
