The CRE Finance Council (CREFC) submitted its comments to regulators on the joint regulatory proposal on credit risk retention for ABS.
CREFC provided recommendations to regulators and voiced its concerns over the proposal's impact on CMBS. The proposal mandates that securitization issuers hold at least 5% of the underlying collateral’s credit risk. However, it contains an exemption for CMBS deals that satisfy specific requirements.
“We are concerned that elements of the proposal, such as the Premium Cash Capture Reserve Account extend beyond the statutory requirements for risk retention and others, such as the operating advisor construct; are overly restrictive,” said CREFC President Jack Cohen. “These proposals could disincentivize CMBS issuance and disrupt the efficient execution of the securitization markets and ultimately the entire commercial real estate industry; including banks, life insurance companies and the government sponsored enterprises.”
The letter made specific recommendations on areas that the proposal can improve upon: the ability of a B-piece buyer to fulfill risk retention requirements, the role of an independent operating advisor when a B-piece buyer holds the retained risk, transferability of the B-piece position, an exception for qualified commercial loans, and the Premium Capture Cash Reserve Account.
“We caution against restrictions that would hinder the securitization market’s ability to effectively provide the capital and liquidity that commercial real estate requires,” said CREFC CEO Steve Renna.
For the complete CREFC letter on proposed risk retention rules, please click here.