Mortgage bankers are trying to get a provision to create a secondary market for commercial real estate loans included in legislation when it reaches the Senate floor.
The provision isn't included in the proposed Community Development, Credit Enhancement and Regulatory Imprement Act, S. 1275, approved by the Senate Banking Committee Sept. 21. Instead, the bill includes a provision that will create a secondary market for small business loans.
While mortgage bankers agree that creating a secondary market for small business loans would be beneficial, they also believe that creating a market for commercial real estate loans would do more.
"A large portion of commercial debt is real estate debt," said Robert Joseph, staff vice president and legislative counsel for the Mortgage Bankers Association of America. "Securitizing these loans will have more of an effect on the economy than securitizing small business loans because [real estate debt] is so large. Distributing some of that debt into a secondary market will let the government spread some of the risk of loss to the public - who is willing to take that risk.
"Regulators have been telling banks to reduce the real estate debt in their portfolios," he said. "It's a good idea, and it'll help stabilize the value of properties and make them more valuable. Eventually. it'll increase the value of the community and strengthen the communities' tax base."
Although the commercial real estate provision wasn't part of the bill, mortgage banking lobbyists said that during markup the committee agreed to take up legislation facilitating securitization of commercial loans as soon as possible.
Although they couldn't get a commitment to reconsider placing the provision from Senate Banking Chairman Donald Riegle, D-Mich., they said they believed there was still a chance to add it on the Senate floor.
"It may come in the form of a floor amendment," said one mortgage banking lobbyist.
"And if not in the Senate, there's still a possibility it could make it into the House bill. One way or another, it may show up when the houses marry up the bills,' he said.
The community development bill also would:
* change margin and securities delivery requirements under federal securities laws to allow issuers more time to pool and sell securities, and permit the filing of a single federal registration statement eliminating state requirements;
* modify bank capital requirements to allow banks selling loans on the secondary market to only set aside as much capital as needed to protect against potential losses. Under current capital rules, banks that sell these loans are required to hold capital reserves as though the loans were not sold at all;
* change federal pension laws to allow financial institutions that manage pension funds also to package and sell these loan-backed securities - similar to the Labor Department waiver for mortgage-backed securities;
* require the Treasury Department to develop tax provisions - similar to those used for real estate mortgage investment conduits - especially for loan pooling entities; and
* amend federal banking and state investment laws so state- or federally chartered financial institutions, insurance companies and pension funds may invest in the investment-grade small-business securities.