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New CMBS Retention Rules to Revamp Real Estate Lending

Posted by NSA on Apr 27, 2016 07:11 AM EDT
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The Housing financial services last month passed a bill, dubbed as the "Preserving Access to CRE Capital Act of 2016," which aims to revamp the current Dodd-Frank risk retention rules.

The Real Deal reported that the bill would have a huge impact on the real estate lending market. The CRE Capital Act of 2016 that Arkansas Representative French Hill introduced would relax restrictions on CMBS issuance beginning December. Under the new rules, 5 percent of a loan's value should be kept by CMBS issuers in the books, which the can pass on to B-piece shareholders. This is in contrast to the current status where they can sell all of them in the form of bonds.

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The publication noted that this will discourage risky lending, which is what happened during the 2008 financial crisis. However, it would also mean that the issuers will have lower profit margins and volume of issued loans as they will be forced to spend their own capital on bonds.

Meanwhile, The Real Deal expounded that with the Preserving Access to CRE Capital Act of 2016, single-asset or single-borrower CMBS would be exempted from the risk retention rule. The act has received supports from almost all trade groups, which include the Appraisal Institute, the National Association of Realtors, the International Council of Shopping Centers and the U.S. Chamber of Commerce.

"Barring some form of relief, borrowers [in] many smaller commercial markets across the country may not be able to finance projects that could spur development and create jobs in the areas that need it most," the trade groups wrote in their joint letter to the House of Representatives, TRD report said.

Earlier this month, National Real Estate Investor reported that CMBS defaults may spur in 2016 because of a large number of loans approaching their maturities. Defaults on CMBS loans fell to 0.39 percent per annum in 2015.

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