Commercial Real Estate Stabilization Act of 2010 - Establishes an Oversight Board to: (1) advise the Secretary of the Treasury on the Commercial Real Estate Credit Guarantee Program (established by this Act); and (2) report quarterly to Congress on the Program and on the current state of the credit system in the United States with respect to commercial lending, small business, and commercial real estate lending.
Directs the Secretary to establish the Commercial Real Estate Credit Guarantee Program, under which the Secretary shall guarantee payments of interest and principal on an approved credit instrument.
Requires 50% of the Program to be used for small- and mid-sized institutions.
Permits loans for either owner-occupied or nonowner-occupied commercial real estate.
States that guarantees issued under this Act constitute general obligations of the United States, for which the full faith and credit of the United States is pledged.
Expresses the intent of Congress that the Program be utilized when such utilization proves beneficial, and not be unduly inhibited by concerns related to potential unfavorable regulatory accounting treatment.
[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5816 Introduced in House (IH)]
111th CONGRESS
2d Session
H. R. 5816
To establish a commercial real estate credit guarantee program to
empower community banks and other lenders to make loans while
stabilizing the value of small denomination commercial real estate
assets, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
July 22, 2010
Mr. Minnick (for himself, Mr. Shuler, Mr. Simpson, Ms. Kosmas, Mr.
LaTourette, Mr. Heinrich, and Mr. Marshall) introduced the following
bill; which was referred to the Committee on Financial Services
_______________________________________________________________________
A BILL
To establish a commercial real estate credit guarantee program to
empower community banks and other lenders to make loans while
stabilizing the value of small denomination commercial real estate
assets, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Commercial Real Estate Stabilization
Act of 2010''.
SEC. 2. OVERSIGHT BOARD.
(a) In General.--There is hereby established the Oversight Board
(hereinafter in this Act referred to as the ``Board'') to provide
advice to the Secretary of the Treasury (hereinafter in this Act
referred to as the ``Secretary'') with regard to the implementation,
operation, and oversight related to, and in accordance with, the
Commercial Real Estate Credit Guarantee Program established under
section 3. The Board is hereby charged particularly in advising the
Secretary with regard to the development of appropriate underwriting
guidelines and credit risk assessments in connection with the Program,
subject to the provisions of section 3(e)(4), and is further charged
with the design and operation of the Program in such ways as to
encourage both participation by eligible institutions as well as the
prompt displacement of the Program by private market interests.
(b) Membership.--The Board shall consist of the following 9
members:
(1) The Secretary.
(2) The Chairman of the Board of Governors of the Federal
Reserve System.
(3) The Chairman of the Securities Exchange Commission.
(4) The Chairperson of the Federal Deposit Insurance
Corporation.
(5) The Director of the Federal Housing Finance Agency.
(6) Four members to be appointed by the President, from
among individuals who have comprehensive and practical
experience in the financial industry.
(c) Reports.--Not later than the end of the 3-month period
beginning on the date of the enactment of this Act, and quarterly
thereafter, the Board shall issue reports to the Secretary, the
Committee on Financial Services of the House of Representatives, and
the Committee on Banking, Housing, and Urban Affairs of the Senate on--
(1) the Program; and
(2) the current state of the credit system in the United
States with respect to commercial lending, including small
business and commercial real estate lending.
(d) Termination.--The Board shall terminate on the date that is the
end of the 1-month period following the program termination date.
SEC. 3. COMMERCIAL REAL ESTATE CREDIT GUARANTEE PROGRAM.
(a) In General.--The Secretary shall establish a Commercial Real
Estate Credit Guarantee Program (hereinafter in this Act referred to as
the ``Program'') in accordance with this section.
(b) Application Process.--
(1) In general.--A sponsor may apply to have a credit
instrument guaranteed under the Program by submitting an
application to the Secretary in such form and manner as the
Secretary may require.
(2) Applications approved in order of receipt.--The
Secretary shall approve applications submitted pursuant to
paragraph (1) by a sponsor for a guarantee of an eligible
credit instrument in the order they are received by the
Secretary, as long as the guarantees issued under the Program
do not relate to credit instruments having an aggregate,
cumulative principal balance in excess of $25,000,000,000
(exclusive of interest).
(3) Fifty percent of program to be used for small- and mid-
sized institutions.--Notwithstanding paragraph (2), not less
than 50 percent of the credit instruments guaranteed under the
Program, by principal balance, shall be for credit instruments
created by eligible institutions specified in subparagraph (A)
of the definition of eligible institution, as of the credit
instrument issuance date. No more than 50 percent of the credit
instruments guaranteed under the Program, by principal balance,
shall be for credit instruments created by eligible
institutions specified in subparagraph (B) of the definition of
eligible institution, as of the credit instrument issuance
date.
(4) Guarantee fee.--In exchange for receiving a credit
guarantee under the Program, the related issuer shall pay to
the Secretary an up-front or periodic guarantee fee at the rate
specified by the Secretary with respect to that specific credit
guarantee. Each guarantee fee shall be at least 200 basis
points per annum, and shall be the sum of the following three
components:
(A) The risk component, which shall be no less than
100 basis points per annum, 100 basis points per annum
being that level used by the risk assessment entities
in determining the investment grade status of the
related credit instrument (or portion thereof) to be
covered by the guarantee; the Board may, or the
Secretary may, increase the risk component above such
100 basis point per annum level with respect to any
individual credit guarantee, in their discretion.
(B) An overhead component, which shall be no less
than zero, and which shall be determined by the
Secretary as being the amount (expressed in basis
points per annum) which, in the aggregate when assessed
across the Program, will be at least sufficient to fund
in full the reasonably estimable costs to the
government of staffing and administering the Program,
including without limitation, the costs of the Board,
the costs of processing applications, the costs
(including the costs of the risk assessment entities
involved) of developing the underwriting guidelines
described in subsection (f) and the costs of legal,
accounting and other professional advisors as may be
retained by the Board.
(C) The market component, which shall be no less
than zero, and which shall be determined by the Board,
with respect to any individual credit guarantee, as
being an amount (expressed in basis points per annum)
which, when added to the other two components of the
guarantee fee, will encourage the participation of the
private market in the provision of credit as an
alternative to the guarantees provided under the
Program.
(c) General Program Details.--
(1) Credit guarantee.--
(A) In general.--With respect to a credit
instrument that is approved for the Program under
subsection (b), the Secretary shall guarantee payments
of interest and principal on such credit instrument.
(B) Credit instrument defined.--The term ``credit
instrument'', as used in this Act, means each and all
of the following: a mortgage loan or a participation
therein, a bond or certificate backed by one or more
mortgage loans or participation interests therein, a
guarantee other than a guarantee issued under the
Program, or any other lending arrangement (including
aggregation facilities) approved by the Secretary upon
recommendation of the Board, provided that the ultimate
collateral for any such credit instrument is commercial
real estate described in subsection (d). In no event
shall a credit instrument be eligible for a guarantee
under the Program if such credit instrument was issued
prior to the effective date of this Act.
(C) Recoveries.--The payment by the Secretary under
a guarantee shall not discharge the liability of the
related issuer with respect to the defaulted payment,
and the Secretary shall be fully subrogated to the
rights of the owner of the credit instrument to receive
the full amount of such defaulted payment from the
related issuer, and shall be entitled to receive such
amounts from such issuer, subject to the availability
of funds thereof.
(D) Sunset.--No credit instrument shall be eligible
for a guarantee under the Program if such credit
instrument is issued after the earlier to occur of--
(i) the date that is the end of the 3-year
period beginning on the date on which the first
guarantee is issued under the Program; and
(ii) the date on which the Board has
delivered a certification to the Secretary that
the commercial real estate credit market has
recovered to such an extent that the Program is
no longer necessary.
(2) Timespan of guarantee.--A credit instrument guarantee
under the Program shall expire at the end of the 10-year period
beginning on the date on which the credit instrument is issued.
(3) Use of profits.--All profits made from the Program
shall be used for deficit reduction.
(d) Issue Requirements.--In order to be an eligible credit
instrument for purposes of the Program, the credit instrument must be a
performing commercial real estate loan, or be backed by one or more
performing commercial real estate loans which, in either case, at the
time of the issuance of such credit instrument, are performing
commercial real estate loans--
(1) where each loan is either--
(A) newly originated, including a new loan on a
commercial property which was REO; or
(B) a refinancing of an existing loan made by the
same borrower;
(2) for which payments of interest and principal are not
past due;
(3) which has a loan term of 10 years or less, and which
amortizes over its terms;
(4) which was originated within the past 180 days (or other
similar time period, to be determined by the Board based on the
applicable asset class) preceding the issuance date of such
credit instrument; and
(5) which complies with such other requirements as the
Board may specify to ensure that the Program is not used in a
manner that was not intended.
(e) Additional Requirements.--A loan relating to a credit
instrument, as described in subsection (d), shall meet the following
criteria:
(1) Loan originators.--Such loan shall have been originated
by an eligible institution as defined in section 5.
(2) Maximum amount.--The principal amount of such loan must
be $10,000,000 or less.
(3) No requirement for owner-occupied property.--Such a
loan may be with respect to either owner-occupied or nonowner-
occupied commercial real estate.
(4) Risk assessments and underwriting guidelines.--
(A) Risk assessment.--No guarantee shall be issued
under the Program unless the application submitted to
the Secretary demonstrates that the guarantee fees
associated with such guarantee, based upon the credit
risk associated with the related credit instrument,
shall create reserves sufficient, with regard to that
individual credit instrument, to meet the anticipated
claims by paying for any related losses and to ensure
that the Secretary and the taxpayers are fully
protected, based on 2 risk-assessment analyses
conducted by 2 independent third-party risk assessment
entities.
(B) Each such risk assessment shall be conducted by
an independent third party approved by the Board. With
respect to bonds or certificates backed by pools of
commercial real estate assets, or aggregation
facilities relating to such assets, such third party
may be any nationally recognized statistical rating
organization approved by the Board, or any other third-
party entity which, upon application to the Board and
approval by the Board, has a demonstrable expertise in
the assessment of credit risk involving pools of
commercial real estate assets. With respect to
individual commercial real estate loans, such third
party may be any entity, including any nationally
recognized statistical rating organization, which, upon
application to the Board and approval by the Board, has
a demonstrable expertise in the assessment of credit
risk involving individual commercial real estate
assets.
(C) No guarantee shall be issued under the Program
unless each of the related independent third-party risk
assessment entities shall have concluded in writing
that the related risk to the Secretary, after taking
into account the reserves created by the related
guarantee fee, the Secretary's subrogation rights, and
the credit characteristics of the related credit
instrument, is not less than investment grade, where
the term ``investment grade'' shall have its generally
understood meaning in the context of the fixed-income
investments rated by nationally recognized statistical
rating organizations. No guarantee shall be issued
under the Program covering a portion or tranche of any
credit instrument. Such investment grade risk
assessment shall be required on a guarantee-by-
guarantee basis, and shall not take into account the
``cross-collateralization'' resulting from Program-wide
reserves as may be accounted for by the Secretary
relating to the Program as a whole.
(D) Any third-party risk assessment entity shall be
independent of the issuer, sponsor, placement agent,
arranger, or underwriter (if any) of the related credit
instrument. In approving third-party risk assessment
entities, the Board shall, to the maximum extent
practicable ensure the inclusion and utilization of
minority, women-, and veteran-owned businesses. The
cost of each risk assessment shall be paid by the
related issuer or the related sponsor, and shall in no
event be a cost borne by the Secretary or by the Board.
(E) All risk assessments shall be evaluated on the
basis of the underlying credit instruments, the level
of the guarantee fee and the Secretary's subrogation
rights, but shall not take into account the credit
support provided by the guarantee itself.
(f) Underwriting Guidelines.--The Board shall, within 60 days of
the effective date of this Act, issue standardized underwriting
guidelines for participation in the Program for credit instruments
which are individual commercial mortgage loans.
(1) Such guidelines shall seek to--
(A) make the Program a profitable investment for
the Government;
(B) provide a safety net for more conservative
borrowers; and
(C) promote the reestablishment of the private
credit market for commercial real estate.
(2) Such guidelines shall be developed with the assistance
of not fewer than 3 independent risk assessment entities
approved by the Board, which shall have each concluded that
bonds or certificates backed by pools containing performing
commercial real estate loans meeting such underwriting
guidelines would be rated at least investment grade if the risk
of the related guarantee fee were 100 basis points per annum.
(g) Risk Retention.--The Board shall, within 60 days of the
effective date of this Act, by regulation, require the related issuer
or sponsor or a third-party purchaser that has specifically negotiated
for the purchase of such economic interest and has conducted due
diligence on such loan or pool of loans, in each case to retain an
economic interest in a portion of the credit risk for each loan or pool
of loans as prescribed in section 941(b) of the Dodd-Frank Wall Street
Reform and Consumer Protection Act. For the avoidance of doubt, the
forms of such economic interest shall include, but are not limited to,
subordinated excess interest strips, subordinated principal, and
subordinated securities. Such regulations shall further provide that
the owner of such economic interest not directly or indirectly hedge or
otherwise transfer the required credit risk, and shall specify the
minimum duration of the risk retention required under this subsection.
(h) Reporting.--
(1) In general.--Not later than the end of the 180-day
period beginning on the date of the enactment of this Act, and
quarterly thereafter, the Secretary shall issue a report to the
Congress containing a review of credit instruments being
guaranteed under the Program and information on the loans and
properties backing such credit instruments, including the
number of loans and properties, the value of the loans and
properties, and information on the performance of the loans and
properties.
(2) Public availability.--The Secretary shall make all
reports made under paragraph (1) available to the public,
including on a Web site.
(i) Status of Guaranties.--All guarantees issued pursuant to this
section shall constitute general obligations of the United States, for
which the full faith and credit of the United States is pledged. All
such guarantees shall be treated as ``loan guarantees'' under section
502(3) of the Federal Credit Reform Act of 1990.
SEC. 4. FUNDING.
(a) In General.--There is hereby authorized to be appropriated, out
of funds in the Treasury not otherwise appropriated, in addition to
such amounts as may be necessary for the reasonable costs of
administering the Program, such sum as may be necessary to issue
guarantees of credit instruments having an aggregate, cumulative
principal balance not in excess of $25,000,000,000, as determined in a
manner consistent with the Federal Credit Reform Act of 1990.
(b) Guarantees Not Under TARP.--The guarantees provided for
hereunder are established as a separate and distinct program from the
guarantees described in section 102 of the Emergency Economic
Stabilization Act of 2008. No eligible institution, sponsor, or issuer
shall be considered a recipient of the Troubled Asset Relief Program
solely by virtue of participation in the Program.
(c) Program Utilization To Be Encouraged.--
(1) The Congress finds that, with respect to the smaller
insured depository institutions, the lingering financial crisis
and lack of liquidity and leverage in the commercial real
estate market has resulted in a substantial number of small
bank failures, with the result that the FDIC and its Deposit
Insurance Fund have absorbed many of the resulting losses. The
Congress has concluded that the Program established under this
Act is, under certain circumstances, a preferred approach to
this problem, as opposed to continued reliance on the FDIC's
resolution authority, which was never intended to provide
liquidity and leverage to the commercial real estate markets.
(2) The Congress further finds that the utilization of this
Program by smaller depository institutions may be inhibited due
to concerns that the credit issuance transactions contemplated
by this Act may, under current rules and regulations governing
loss recognition, regulatory capital, and related accounting
matters, result in unfavorable regulatory accounting treatment
to such institutions, notwithstanding the other benefits
accruing to such institutions, the commercial real estate
markets and the economy at large by the utilization of this
Program. In addition, the Congress specifically finds that the
requirements of FAS 166/167 shall not be applicable to the
Program, provided that any assets or liabilities created by the
issuance of securities under the Program shall be reasonably
and adequately disclosed.
(3) Consequently, it is the intent of the Congress that
this Program be utilized when such utilization otherwise proves
beneficial, and that, in such cases, utilization not be unduly
inhibited by concerns related to potential unfavorable
regulatory accounting treatment. In furtherance of such
Congressional intent, the Board is directed to confer with the
Chairperson of the FDIC, representatives of the Conference of
State Banking Supervisors, representatives of the Financial
Accounting Standards Board, and representatives of the
community banking industry, with the result that the FDIC shall
issue, within 60 days of the enactment of this Act, such rules
and regulations as are consistent with such Congressional
intent stated herein.
(4) Additionally, in order to ensure that State foreclosure
laws do not contravene the mechanics and operational efficiency
of this Program, all loans backing bonds issued under this
Program shall be subject to an expedited Federal court
foreclosure process should such loans default. The underlying
documentation need not specify foreclosure remedies, and in
furtherance of the Congressional intent described above, such
foreclosure action instituted in Federal court shall be subject
to removal to State court. No such foreclosure action shall be
stayed as a result of the bankruptcy of the related borrower.
SEC. 5. OTHER DEFINITIONS.
For purposes of this Act:
(1) Board.--The term ``Board'' means the Oversight Board
established under section 2.
(2) Cost.--The term ``cost'' has the meaning given such
term under section 502(5)(A) of the Federal Credit Reform Act
of 1990, as amended.
(3) Effective date.--The term ``effective date'' shall mean
the date on which the provision of this Act becomes law.
(4) Eligible institution.--The term ``eligible
institution'' means, for purposes of this Act, either--
(A)(i) any insured depository institution, which--
(I) is not controlled by a bank holding
company or savings and loan holding company
that is also an eligible institution;
(II) has total assets of equal to or less
than $10,000,000,000, as reported in the call
report as of the end of the fourth quarter of
the most recently ended year for such fourth-
quarter call report is available; and
(III) is not directly or indirectly
controlled by any company or other entity that
has total consolidated assets of more than
$10,000,000,000, as so reported;
(ii) any bank holding company which has total
assets of equal to or less than $10,000,000,000;
(iii) any savings and loan holding company which
has total assets of equal to or less than $10,000,000;
or
(B) any entity not described in subparagraph (A)
above and which the Board has not determined is
ineligible to participate in the Program.
(5) Insured depository institution.--The term ``insured
depository institution'' has the meaning given such term under
section 3(c)(2) of the Federal Deposit Insurance Act (12 U.S.C.
1813(c)(2)).
(6) Issuer.--The term ``issuer'' means either--
(A) with respect to a credit instrument which is an
individual mortgage loan or a participation interest in
an individual mortgage loan (including a new loan on a
commercial property which was REO or a refinancing of
an existing loan made by the same borrower), or a
guarantee of an individual mortgage loan, the related
borrower; or
(B) with respect to a credit instrument which is a
bond or certificate, or with respect to a guarantee
relating to a pool of mortgage loans, participation
interests in mortgage loans (including a new loan on a
commercial property which was REO or a refinancing of
an existing loan made by the same borrower), a
``special purpose vehicle'' entity (such as a trust or
limited liability company) that issues such a credit
instrument;
in each case that is guaranteed under the Program.
(7) Program.--The term ``Program'' means the commercial
real estate credit guarantee program established under section
3.
(8) REO.--The term ``REO'' means, with respect to an
eligible institution, any real property to which such eligible
institution holds title pursuant to foreclosure, a deed of lieu
of foreclosure, assignment, conveyance, or any other action in
connection with a mortgage made, held, insured, guaranteed, or
securitized by such eligible institution.
(9) Sponsor.--The term ``Sponsor'' ``'' means, in the case
of a securitization or aggregation arrangement, an entity
that--
(A) securitizes commercial real estate loans and
that has met the Board's expertise requirements for
participation in the Program, provided that the
Sponsor's management expertise and previous bond
performance will be strongly considered as part of the
Sponsor's approval process;
(B) forms an issuer; and
(C) creates the credit instruments issued by the
issuer under the Program (and the sponsor described
herein may also be an eligible institution with respect
to the related loans).
(10) Program termination date.--The term ``program
termination date'' means the date on which the last credit
instrument has been paid in full (disregarding for this purpose
any amounts owed to the Secretary on account of the Secretary's
subrogation rights).
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Financial Services.
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