Senator sees Dodd-Frank trumping ad hoc CMBS regulation
Sen. Mike Crapo (R-Idaho) sent a letter to Treasury Secretary Tim Geithner late Wednesday reminding him that when it comes to mortgage-backed securitizations, not all assets are created equal. In the letter, Crapo outlines his concerns that aspects of the Dodd-Frank Act — namely provisions he authored — will be applied inappropriately to the fragile recovery in the commercial MBS market. In particular, the 5% risk-retention mandate is not meant to be evenly applied across securitization, the letter states. Crapo's additions to Dodd-Frank allow for CMBS to be treated separately, he writes. The financial reform calls for a two-year phase-in period and the concern in the industry is that regulators are trying to put new rules in front of that time frame. "While the regulators must jointly produce retention rules under Dodd-Frank, there already have been several ad hoc rules from individual regulators that simply blanket a single retention framework broadly across all asset classes," Crapo's letter to Geithner states. "Many of us remained concerned about the creation of a 'one-size-fits all' retention rule that could stifle a commercial real estate recovery before it can occur." While the Senator makes no mention of the ad hoc rules, presumably it is in reference to Regulation AB (SEC) and Safe Harbor (FDIC). The CRE Finance Council, a trade group representing the industry, maintains investors and other market participants in the space would like to see a package of reforms that include robust disclosures and reps and warranties. The CRE Finance Council's best practices guidance, expected in two weeks, will likely reflect this viewpoint. And with new issuance predicted in 2011 at up to $50 billion, it is vital to maintain market momentum. "With the commercial real estate market turning a corner, there is nothing more important than supporting a sound and vibrant CMBS market," said Brendan Reilly, a lobbyist for the CRE Finance Council. "Regulators should be certain that the nuances of Dodd-Frank are administered fairly." Write to Jacob Gaffney. Follow him on Twitter @JacobGaffney.