MBA advocates an end to premium capture cash reserve account on CRE deals
A proposed rule that requires financial institutions to retain a 5% stake in the credit risk of securitized loan products should be revamped to ensure liquidity is not constrained in the commercial/multifamily sector, the Mortgage Bankers Association said in a letter to regulators this week. Specifically, the MBA is challenging the proposed creation of Premium Cash Capture Reserve Accounts under Dodd-Frank to cover first losses stemming from loan securitizations. The MBA believes the PCCRA, which would be created by MBS issuers to hold funds for future losses, should be eliminated in its entirety. "We believe that it would be exceedingly disruptive to the CMBS market (which relies on the interest only tranche for expense recovery and a return on capital), and effectively would remove the financial incentive to issue CMBS, potentially eliminating CMBS as a potential source of permanent mortgage capital for commercial/multifamily real estate borrowers," the Mortgage Bankers Association said in a letter to regulators. Instead, the trade group proposes establishing a retained credit risk by replacing the PCCRA with a risk formula that would multiply the net sale proceeds from a deal by 5% to establish retained credit risk on a vertical slice. The MBA added, "For the horizontal slice, we believe the methodology should be based on the par value (defined as the par values of the securities, which for REMIC purposes equates to the unpaid principal balance of the loans securitized) multiplied by 5%, and that the net weighted average coupon of the qualifying horizontal slice be no less than that of the entire pool." Write to Kerri Panchuk.