1.This Act may be cited as the
Commercial Real Estate Stabilization
Act of 2010
.
2.
(a)There is hereby established the Oversight Board
(hereinafter in this Act referred to as the Board) to provide
advice to the Secretary of the Treasury (hereinafter in this Act referred to as
the Secretary) with regard to the implementation, operation, and
oversight related to, and in accordance with, the Commercial Real Estate Credit
Guarantee Program established under section 3. The Board is hereby charged
particularly in advising the Secretary with regard to the development of
appropriate underwriting guidelines and credit risk assessments in connection
with the Program, subject to the provisions of section 3(e)(4), and is further
charged with the design and operation of the Program in such ways as to
encourage both participation by eligible institutions as well as the prompt
displacement of the Program by private market interests.
(b)The
Board shall consist of the following 9 members:
(1)The
Secretary.
(2)The Chairman of
the Board of Governors of the Federal Reserve System.
(3)The Chairman of
the Securities Exchange Commission.
(4)The Chairperson of
the Federal Deposit Insurance Corporation.
(5)The Director of
the Federal Housing Finance Agency.
(6)Four members to be
appointed by the President, from among individuals who have comprehensive and
practical experience in the financial industry.
(c)Not
later than the end of the 3-month period beginning on the date of the enactment
of this Act, and quarterly thereafter, the Board shall issue reports to the
Secretary, the Committee on Financial Services of the House of Representatives,
and the Committee on Banking, Housing, and Urban Affairs of the Senate
on—
(1)the Program;
and
(2)the current state
of the credit system in the United States with respect to commercial lending,
including small business and commercial real estate lending.
(d)The
Board shall terminate on the date that is the end of the 1-month period
following the program termination date.
3.Commercial Real
Estate Credit Guarantee Program
(a)The Secretary shall establish a Commercial Real Estate
Credit Guarantee Program (hereinafter in this Act referred to as the
Program) in accordance with this section.
(b)
(1)A sponsor may apply to have a credit instrument
guaranteed under the Program by submitting an application to the Secretary in
such form and manner as the Secretary may require.
(2)Applications
approved in order of receiptThe Secretary shall approve
applications submitted pursuant to paragraph (1) by a sponsor for a guarantee
of an eligible credit instrument in the order they are received by the
Secretary, as long as the guarantees issued under the Program do not relate to
credit instruments having an aggregate, cumulative principal balance in excess
of $25,000,000,000 (exclusive of interest).
(3)Fifty percent of
program to be used for small- and mid-sized
institutionsNotwithstanding paragraph (2), not less than 50
percent of the credit instruments guaranteed under the Program, by principal
balance, shall be for credit instruments created by eligible institutions
specified in subparagraph (A) of the definition of eligible institution, as of
the credit instrument issuance date. No more than 50 percent of the credit
instruments guaranteed under the Program, by principal balance, shall be for
credit instruments created by eligible institutions specified in subparagraph
(B) of the definition of eligible institution, as of the credit instrument
issuance date.
(4)In exchange for receiving a credit guarantee under the
Program, the related issuer shall pay to the Secretary an up-front or periodic
guarantee fee at the rate specified by the Secretary with respect to that
specific credit guarantee. Each guarantee fee shall be at least 200 basis
points per annum, and shall be the sum of the following three
components:
(A)The risk
component, which shall be no less than 100 basis points per annum, 100 basis
points per annum being that level used by the risk assessment entities in
determining the investment grade status of the related credit instrument (or
portion thereof) to be covered by the guarantee; the Board may, or the
Secretary may, increase the risk component above such 100 basis point per annum
level with respect to any individual credit guarantee, in their
discretion.
(B)An overhead
component, which shall be no less than zero, and which shall be determined by
the Secretary as being the amount (expressed in basis points per annum) which,
in the aggregate when assessed across the Program, will be at least sufficient
to fund in full the reasonably estimable costs to the government of staffing
and administering the Program, including without limitation, the costs of the
Board, the costs of processing applications, the costs (including the costs of
the risk assessment entities involved) of developing the underwriting
guidelines described in subsection (f) and the costs of legal, accounting and
other professional advisors as may be retained by the Board.
(C)The market
component, which shall be no less than zero, and which shall be determined by
the Board, with respect to any individual credit guarantee, as being an amount
(expressed in basis points per annum) which, when added to the other two
components of the guarantee fee, will encourage the participation of the
private market in the provision of credit as an alternative to the guarantees
provided under the Program.
(c)
(1)
(A)With respect to a credit instrument that is approved for
the Program under subsection (b), the Secretary shall guarantee payments of
interest and principal on such credit instrument.
(B)Credit
instrument definedThe term credit instrument, as
used in this Act, means each and all of the following: a mortgage loan or a
participation therein, a bond or certificate backed by one or more mortgage
loans or participation interests therein, a guarantee other than a guarantee
issued under the Program, or any other lending arrangement (including
aggregation facilities) approved by the Secretary upon recommendation of the
Board, provided that the ultimate collateral for any such credit instrument is
commercial real estate described in subsection (d). In no event shall a credit
instrument be eligible for a guarantee under the Program if such credit
instrument was issued prior to the effective date of this Act.
(C)The
payment by the Secretary under a guarantee shall not discharge the liability of
the related issuer with respect to the defaulted payment, and the Secretary
shall be fully subrogated to the rights of the owner of the credit instrument
to receive the full amount of such defaulted payment from the related issuer,
and shall be entitled to receive such amounts from such issuer, subject to the
availability of funds thereof.
(D)No
credit instrument shall be eligible for a guarantee under the Program if such
credit instrument is issued after the earlier to occur of—
(i)the
date that is the end of the 3-year period beginning on the date on which the
first guarantee is issued under the Program; and
(ii)the
date on which the Board has delivered a certification to the Secretary that the
commercial real estate credit market has recovered to such an extent that the
Program is no longer necessary.
(2)A credit instrument guarantee under the Program shall
expire at the end of the 10-year period beginning on the date on which the
credit instrument is issued.
(3)All profits made from
the Program shall be used for deficit reduction.
(d)In order to be an eligible credit instrument for
purposes of the Program, the credit instrument must be a performing commercial
real estate loan, or be backed by one or more performing commercial real estate
loans which, in either case, at the time of the issuance of such credit
instrument, are performing commercial real estate loans—
(1)where each loan is
either—
(A)newly originated,
including a new loan on a commercial property which was REO; or
(B)a refinancing of
an existing loan made by the same borrower;
(2)for which payments
of interest and principal are not past due;
(3)which has a loan
term of 10 years or less, and which amortizes over its terms;
(4)which was
originated within the past 180 days (or other similar time period, to be
determined by the Board based on the applicable asset class) preceding the
issuance date of such credit instrument; and
(5)which complies
with such other requirements as the Board may specify to ensure that the
Program is not used in a manner that was not intended.
(e)A loan relating to a credit instrument, as described
in subsection (d), shall meet the following criteria:
(1)Such loan shall have been originated by an eligible
institution as defined in section 5.
(2)The principal amount of such loan must be $10,000,000 or
less.
(3)No requirement
for owner-occupied propertySuch a loan may be with respect to
either owner-occupied or nonowner-occupied commercial real estate.
(4)Risk assessments
and underwriting guidelines
(A)No guarantee shall be issued under the Program unless
the application submitted to the Secretary demonstrates that the guarantee fees
associated with such guarantee, based upon the credit risk associated with the
related credit instrument, shall create reserves sufficient, with regard to
that individual credit instrument, to meet the anticipated claims by paying for
any related losses and to ensure that the Secretary and the taxpayers are fully
protected, based on 2 risk-assessment analyses conducted by 2 independent
third-party risk assessment entities.
(B)Each such risk
assessment shall be conducted by an independent third party approved by the
Board. With respect to bonds or certificates backed by pools of commercial real
estate assets, or aggregation facilities relating to such assets, such third
party may be any nationally recognized statistical rating organization approved
by the Board, or any other third-party entity which, upon application to the
Board and approval by the Board, has a demonstrable expertise in the assessment
of credit risk involving pools of commercial real estate assets. With respect
to individual commercial real estate loans, such third party may be any entity,
including any nationally recognized statistical rating organization, which,
upon application to the Board and approval by the Board, has a demonstrable
expertise in the assessment of credit risk involving individual commercial real
estate assets.
(C)No guarantee shall be issued under the
Program unless each of the related independent third-party risk assessment
entities shall have concluded in writing that the related risk to the
Secretary, after taking into account the reserves created by the related
guarantee fee, the Secretary’s subrogation rights, and the credit
characteristics of the related credit instrument, is not less than investment
grade, where the term investment grade shall have its generally
understood meaning in the context of the fixed-income investments rated by
nationally recognized statistical rating organizations. No guarantee shall be
issued under the Program covering a portion or tranche of any credit
instrument. Such investment grade risk assessment shall be required on a
guarantee-by-guarantee basis, and shall not take into account the
cross-collateralization
resulting from Program-wide reserves as
may be accounted for by the Secretary relating to the Program as a
whole.
(D)Any third-party
risk assessment entity shall be independent of the issuer, sponsor, placement
agent, arranger, or underwriter (if any) of the related credit instrument. In
approving third-party risk assessment entities, the Board shall, to the maximum
extent practicable ensure the inclusion and utilization of minority, women-,
and veteran-owned businesses. The cost of each risk assessment shall be paid by
the related issuer or the related sponsor, and shall in no event be a cost
borne by the Secretary or by the Board.
(E)All risk
assessments shall be evaluated on the basis of the underlying credit
instruments, the level of the guarantee fee and the Secretary’s subrogation
rights, but shall not take into account the credit support provided by the
guarantee itself.
(f)The Board shall, within 60 days of the effective date
of this Act, issue standardized underwriting guidelines for participation in
the Program for credit instruments which are individual commercial mortgage
loans.
(1)Such guidelines
shall seek to—
(A)make the Program a
profitable investment for the Government;
(B)provide a safety
net for more conservative borrowers; and
(C)promote the
reestablishment of the private credit market for commercial real estate.
(2)Such guidelines
shall be developed with the assistance of not fewer than 3 independent risk
assessment entities approved by the Board, which shall have each concluded that
bonds or certificates backed by pools containing performing commercial real
estate loans meeting such underwriting guidelines would be rated at least
investment grade if the risk of the related guarantee fee were 100 basis points
per annum.
(g)The Board shall,
within 60 days of the effective date of this Act, by regulation, require the
related issuer or sponsor or a third-party purchaser that has specifically
negotiated for the purchase of such economic interest and has conducted due
diligence on such loan or pool of loans, in each case to retain an economic
interest in a portion of the credit risk for each loan or pool of loans as
prescribed in section 941(b) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act. For the avoidance of doubt, the forms of such economic interest
shall include, but are not limited to, subordinated excess interest strips,
subordinated principal, and subordinated securities. Such regulations shall
further provide that the owner of such economic interest not directly or
indirectly hedge or otherwise transfer the required credit risk, and shall
specify the minimum duration of the risk retention required under this
subsection.
(h)
(1)Not later than the end of the 180-day period beginning on
the date of the enactment of this Act, and quarterly thereafter, the Secretary
shall issue a report to the Congress containing a review of credit instruments
being guaranteed under the Program and information on the loans and properties
backing such credit instruments, including the number of loans and properties,
the value of the loans and properties, and information on the performance of
the loans and properties.
(2)The Secretary shall make all reports made under
paragraph (1) available to the public, including on a Web site.
(i)All guarantees issued pursuant to this section shall
constitute general obligations of the United States, for which the full faith
and credit of the United States is pledged. All such guarantees shall be
treated as loan guarantees under section 502(3) of the Federal
Credit Reform Act of 1990.
4.
(a)There is hereby authorized to be appropriated, out of
funds in the Treasury not otherwise appropriated, in addition to such amounts
as may be necessary for the reasonable costs of administering the Program, such
sum as may be necessary to issue guarantees of credit instruments having an
aggregate, cumulative principal balance not in excess of $25,000,000,000, as
determined in a manner consistent with the Federal Credit Reform Act of
1990.
(b)Guarantees not
under TARPThe guarantees provided for hereunder are established
as a separate and distinct program from the guarantees described in section 102
of the Emergency Economic Stabilization Act of 2008. No eligible institution,
sponsor, or issuer shall be considered a recipient of the Troubled Asset Relief
Program solely by virtue of participation in the Program.
(c)Program
utilization To be encouraged
(1)The Congress finds
that, with respect to the smaller insured depository institutions, the
lingering financial crisis and lack of liquidity and leverage in the commercial
real estate market has resulted in a substantial number of small bank failures,
with the result that the FDIC and its Deposit Insurance Fund have absorbed many
of the resulting losses. The Congress has concluded that the Program
established under this Act is, under certain circumstances, a preferred
approach to this problem, as opposed to continued reliance on the FDIC’s
resolution authority, which was never intended to provide liquidity and
leverage to the commercial real estate markets.
(2)The Congress further finds that the
utilization of this Program by smaller depository institutions may be inhibited
due to concerns that the credit issuance transactions contemplated by this Act
may, under current rules and regulations governing loss recognition, regulatory
capital, and related accounting matters, result in unfavorable regulatory
accounting treatment to such institutions, notwithstanding the other benefits
accruing to such institutions, the commercial real estate markets and the
economy at large by the utilization of this Program. In addition, the Congress
specifically finds that the requirements of FAS 166/167 shall not be applicable
to the Program, provided that any assets or liabilities created by the issuance
of securities under the Program shall be reasonably and adequately
disclosed.
(3)Consequently, it
is the intent of the Congress that this Program be utilized when such
utilization otherwise proves beneficial, and that, in such cases, utilization
not be unduly inhibited by concerns related to potential unfavorable regulatory
accounting treatment. In furtherance of such Congressional intent, the Board is
directed to confer with the Chairperson of the FDIC, representatives of the
Conference of State Banking Supervisors, representatives of the Financial
Accounting Standards Board, and representatives of the community banking
industry, with the result that the FDIC shall issue, within 60 days of the
enactment of this Act, such rules and regulations as are consistent with such
Congressional intent stated herein.
(4)Additionally, in
order to ensure that State foreclosure laws do not contravene the mechanics and
operational efficiency of this Program, all loans backing bonds issued under
this Program shall be subject to an expedited Federal court foreclosure process
should such loans default. The underlying documentation need not specify
foreclosure remedies, and in furtherance of the Congressional intent described
above, such foreclosure action instituted in Federal court shall be subject to
removal to State court. No such foreclosure action shall be stayed as a result
of the bankruptcy of the related borrower.
5.For purposes of
this Act:
(1)The
term Board means the Oversight Board established under section
2.
(2)The
term cost has the meaning given such term under section 502(5)(A)
of the Federal Credit Reform Act of 1990, as amended.
(3)The term effective date shall mean the date on
which the provision of this Act becomes law.
(4)The term eligible institution means, for
purposes of this Act, either—
(A)(i)any insured depository
institution, which—
(I)is not controlled by a bank holding
company or savings and loan holding company that is also an eligible
institution;
(II)has total assets of equal to or less
than $10,000,000,000, as reported in the call report as of the end of the
fourth quarter of the most recently ended year for such fourth-quarter call
report is available; and
(III)is not directly or indirectly
controlled by any company or other entity that has total consolidated assets of
more than $10,000,000,000, as so reported;
(ii)any bank holding company which has
total assets of equal to or less than $10,000,000,000;
(iii)any savings and loan holding
company which has total assets of equal to or less than $10,000,000; or
(B)any entity not
described in subparagraph (A) above and which the Board has not determined is
ineligible to participate in the Program.
(5)Insured
depository institutionThe term insured depository
institution has the meaning given such term under section 3(c)(2) of the
Federal Deposit Insurance Act (12 U.S.C. 1813(c)(2)).
(6)The
term issuer means either—
(A)with respect to a
credit instrument which is an individual mortgage loan or a participation
interest in an individual mortgage loan (including a new loan on a commercial
property which was REO or a refinancing of an existing loan made by the same
borrower), or a guarantee of an individual mortgage loan, the related borrower;
or
(B)with respect to a
credit instrument which is a bond or certificate, or with respect to a
guarantee relating to a pool of mortgage loans, participation interests in
mortgage loans (including a new loan on a commercial property which was REO or
a refinancing of an existing loan made by the same borrower), a special
purpose vehicle
entity (such as a trust or limited liability company)
that issues such a credit instrument;
in each case
that is guaranteed under the Program.(7)The
term Program means the commercial real estate credit guarantee
program established under section 3.
(8)The
term REO means, with respect to an eligible institution, any real
property to which such eligible institution holds title pursuant to
foreclosure, a deed of lieu of foreclosure, assignment, conveyance, or any
other action in connection with a mortgage made, held, insured, guaranteed, or
securitized by such eligible institution.
(9)The
term Sponsor
means, in the case of a securitization
or aggregation arrangement, an entity that—
(A)securitizes commercial real estate loans
and that has met the Board’s expertise requirements for participation in the
Program, provided that the Sponsor’s management expertise and previous bond
performance will be strongly considered as part of the Sponsor’s approval
process;
(B)forms an issuer;
and
(C)creates the credit
instruments issued by the issuer under the Program (and the sponsor described
herein may also be an eligible institution with respect to the related
loans).
(10)The term program termination date
means the date on which the last credit instrument has been paid in full
(disregarding for this purpose any amounts owed to the Secretary on account of
the Secretary’s subrogation rights).