Provisions that would have allowed for the securitization of commercial real estate in the Community Development, Credit Enhancement, and Regulatory Improvement Act were defeated by House/Senate conferees. The defeat is a blow to mortgage bankers and brokerages which had lobbied hard for its approval.
Lawmakers chose instead to support only provisions that would facilitate the securitization of small business loans and leases. The House/Senate conferees, who approved the H.R. 3474 provisions July 19, omitted the commercial real estate provisions while ironing out conflicts on H.R. 3474, and H.R. 3841, the Interstate Banking and Branching Efficiency Act of 1994.
The securitization language is in legislation establishing community development banks passed by the Senate earlier this year. Legislation with the same title that passed the House contained no similar provision.
The defeat of the securitization provisions had strong support from Wall Street underwriters and Sen. Alfonse DAmato, R-N.Y. The defeat reflected the power on the conference panel of Rep. John D. Dingell, Jr., chairman of the House Energy and Commerce Committee. Dingell has opposed provisions facilitating securitization of commercial real estate for years because he feared it would lead to fraud and abuse that could hurt investors, securities firms and insured financial institutions.
The bill as agreed to by the conferees allows securitization of small business loans as defined by the Small Business Administration.
The bill also calls for a study by the Securities and Exchange Commission and the Federal Reserve Board of the effect of the securitization provision on the availability of credit in the securities markets.
Conferees were seeking to complete work on the bill July 21 because hearings on the Whitewater issues were scheduled before the House and Senate banking committees the week of July 25. The hope is that if work was completed before Congress left July 21, staffers could finish the conference report on the two bills so they can be passed by Congress and sent to the president before mid-August, when Congress recesses for several weeks before returning after Labor Day.