Seeking an opportunity to develop a secondary market for the securitization of commercial real estate that could rival the mortgage-backed securities market, mortgage bankers may have found their opportunity in a broad-based securitization bill wending through Congress.
The bill, the Business. Commercial and Community Development Secondary Market Development Act. before the House Banking Subcommittee on Economic Growth and Credit Formation, is scheduled for markup within the next two weeks.
Mortgage bankers like the bill because they believe it will help them jump-start the slow-moving commercial real estate market by providing liquidity for it.
Support for the bill varies, but House Banking insiders believe the bill--or some derivative of it--will either be passed or end up as a separate title of one of several similar bills in Congress. Among the potential vehicles is the Clinton administration's Community Development bill before the House.
Although they're generally in favor of a bill, mortgage bankers and the Federal Reserve aren't happy with every aspect of it. They seek changes that would remove the potential power that would be wielded by the Treasury Department.
"The [bill] requires the Treasury to develop requirements for ensuring a certain percentage of the securitizations would be for small business loans," said Rob Josephs, staff vice president and legislative counsel for the Mortgage Bankers Association of America. "We'd rather let the market make the determination for what should be in the pools."
The Fed also would like to see some key points altered. "This legislation would create a parallel regulatory structure that duplicates the work of those agencies." said John LaWare, a governor of Federal Reserve System, at a hearing Oct. 7.
LaWare urged Congress to let the regulating agencies develop standards for this new market, rather than try on its own to write complex regulatory requirements into law.
That position drew a strong response from Rep. Paul Kanjorski, D-Pa., the principal sponsor of the bill and chairman of the subcommittee that held the hearing. Without proper regulation, he warned, "unscrupulous bankers and pooling organizers" could take advantage of the new market and "billions of dollars in improperly securitized loans' could find their way into the portfolios of pension funds and other investors.
By centralizing regulation in the Treasury, Kanjorski said, the bill would ensure banks and securities firms operate under the same rules. Rather than do all the regulating, Treasury might delegate specific powers to each agency while retaining general oversight.
