[House Report 114-597]
[From the U.S. Government Publishing Office]


114th Congress    }                                      {      Report
                        HOUSE OF REPRESENTATIVES
 2d Session       }                                      {     114-597

======================================================================



 
              PRESERVING ACCESS TO CRE CAPITAL ACT OF 2016

                                _______
                                

  May 26, 2016.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 4620]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 4620) to amend the Securities Exchange Act of 
1934 to exempt certain commercial real estate loans from risk 
retention requirements, and for other purposes, having 
considered the same, report favorably thereon without amendment 
and recommend that the bill do pass.

                          Purpose and Summary

    Introduced by Representative French Hill on February 25, 
2016, H.R. 4620, the Preserving Access to CRE Capital Act of 
2016, amends the risk retention requirements mandated by 
Section 941 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) for certain ``qualified'' 
commercial real estate loans. The bill also provides modest 
relief for one sector of commercial mortgage-backed securities 
knowns as the Single Asset Single Borrower (``SASB'') Market. 
Applying risk retention requirements mandated by the Dodd-Frank 
Act to commercial real estate securitizations adds costs to the 
security borne by borrowers, which in turn stifles economic 
growth and reduces investor interest in the commercial real 
estate market.

                  Background and Need for Legislation

    As noted by the testimony of the representative of the 
Commercial Real Estate Finance Council (``CREFC'') at the 
Capital Markets and Government Sponsored Enterprises 
Subcommittee hearing to examine H.R. 4620, securitization ``is 
one of the essential processes for the delivery of capital 
necessary for the health of commercial real estate markets and 
broader macro-economic growth.'' Section 941 of the Dodd-Frank 
Act is premised on a view that by requiring securitizers to 
retain some credit risk or--``skin in the game''--and forcing 
them to bear losses if a borrower defaults, securitizers will 
better monitor the quality of loans that are bundled into the 
pool.
    The purpose of risk retention is to protect investors 
buying conduit securitizations with dozens of assets in a pool 
in cases where it is difficult to analyze the underlying 
assets. However, the concern that the underlying assets are too 
complicated to analyze is not an issue for securities in the 
SASB Market. A SASB securitization consists of a single, large 
mortgage on one asset (such as a mall). Usually, a single 
lender does not finance these large developments, which is why 
it is more efficient to use commercial mortgage-backed security 
(CMBS) financing through the public capital markets. Investors 
generally are attracted to SASB securitizations because they 
are easy to understand and underwrite and perform well. 
Applying the Dodd-Frank Act's risk retention requirements to 
SASB securities adds increased costs to borrowers, reduces 
returns to investors, and could hamper competition in the 
financing market due to increased and burdensome compliance 
costs. H.R. 4620 provides modest regulatory relief by exempting 
SASB securities from the Dodd-Frank Act's risk retention 
requirements.
    It is important to provide relief to SASB securities 
because the single-asset CMBS market is the only natural, 
holistic funding source for commercial properties. At the end 
of 2015, the Federal Reserve and Office of the Comptroller of 
the Currency published a bulletin warning regulated 
institutions against over-exposure to commercial real estate--
suggesting that commercial bank lending will not be a 
substitute funding source for such properties and that banks 
will in all likelihood reduce their lending in the commercial 
space. This reduction in lending will reduce market capacity 
because banks are currently the largest lenders to commercial 
assets; CMBS is second. If the CMBS market becomes stagnant 
because of the risk retention requirements, bond prices will 
decrease, which will harm borrowers and investors. Current 
investors will be forced to write down the value of their 
holdings; market illiquidity could have a contagion effect on 
the primary lending markets, which would further increase loan 
rates and drive demand to insurance companies and other 
regulated entities that do not have sufficient capital to meet 
market needs. Should this occur, it will affect the prices of 
the underlying assets--the real estate itself. The market has 
witnessed the effects of a precipitous drop in real estate 
prices through many cycles; such drops usually do not benefit 
investors, owners, or taxpayers. Simply put, applying the Dodd-
Frank Act's risk retention mandate to the SASB market is 
inappropriate, misguided, and will harm market participants, 
including investors.
    Overall, the CMBS market is losing institutional capacity. 
Banks and mortgage originators are leaving the market or 
substantially reducing their exposure to it. Once industry 
capacity is lost, it takes a long time before this capacity can 
be regenerated. A significant driver of this deterioration in 
the CMBS market is burdensome regulation. While the overall 
intent of the regulations is well-founded, the overwhelming 
burden of rules not appropriately tailored to the 
characteristics of different asset classes provides little 
marginal prudential improvement, if at all. At the same time, 
these rules generate significant costs to the end users (i.e., 
borrowers and consumers) and to savers whose investments are 
devalued as a result. Consequently, industry participants of 
all types have expressed concerns that regulation is 
institutionalizing inefficiencies, and could even severely 
disable the CMBS market. As the CREFC representative testified 
before the Capital Markets Subcommittee, ``lenders and 
investors agree that a dislocation in CMBS will travel quickly 
throughout the commercial real estate debt and equity markets, 
impacting valuations and fundamentals and potentially inciting 
a negative feedback loop throughout the sector by depressing 
values and increasing defaults.''

Risk retention regulatory relief for qualified CMBS loans

    H.R. 4620 provides limited relief for qualified CMBS loans. 
Under current law, only a small percentage of CMBS loans are 
considered qualified commercial real estate (QCRE) loans and 
therefore exempt from risk retention requirements. 
Inexplicably, regulators used different factors for determining 
qualified residential mortgage-backed securities as compared to 
qualified commercial real estate mortgage-backed securities. 
More than 85% of today's residential mortgage-backed securities 
(RMBS) loans would qualify for an exemption from risk 
retention; however, in the CMBS market, only 3-8% of all CMBS 
loans would qualify. The current inconsistent treatment of 
qualified commercial versus residential mortgage-based 
securities defies logical explanation, given that failed 
housing policies precipitated the financial crisis. 
Accordingly, H.R. 4620 affords similar and appropriate 
treatment to qualified CMBS loans.
    Representative Hill's legislation restores the proper 
balance between risk retention and a healthy, functioning CMBS 
market for borrowers and employers across the United States. 
Specifically, H.R. 4620: (1) exempts SASB securities from the 
Dodd-Frank Act's risk retention requirements; (2) sets 
reasonable parameters for regulating and designating certain 
high-quality commercial loans as ``qualified'' and therefore 
exempt from the risk retention rules; and (3) provides 
flexibility to suit investors by making risk retention 
requirements applicable to third party purchasers of commercial 
real estate loans less onerous.

Required rulemaking

    The Committee believes that regulators had the authority to 
limit the application of the Dodd-Frank Act's risk retention 
requirements to commercial mortgages because of the inclusion 
of language within Section 941(b), which added Section 15G to 
the Securities Exchange Act of 1934. The regulators' decision 
not to exercise this authority necessitated H.R. 4620, which 
requires the issuance of one joint rule by the prudential 
regulators and the Securities and Exchange Commission to 
provide relief for a subset of commercial mortgages known as 
the ``qualified'' commercial real estate loan.

                                Hearings

    The Committee on Financial Services' Subcommittee on 
Capital Markets and Government Sponsored Enterprises held a 
hearing examining matters relating to H.R. 4620 on February 24, 
2016.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
March 2, 2016, and ordered H.R. 4620 to be reported favorably 
to the House without amendment by a recorded vote of 39 yeas to 
18 nays (recorded vote no. FC-101), a quorum being present.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. The 
sole record vote in Committee was a motion by Chairman 
Hensarling to report the bill favorably to the House without 
amendment. That motion was agreed to by a recorded vote of 39 
yeas to 18 nays (Record vote no. FC-101), a quorum being 
present.


                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 4620 
will reduce costs to borrowers, increase returns to investors, 
and increase competition amongst credit providers by modifying 
the Dodd-Frank Act's risk retention requirements for certain 
commercial real estate loans and by providing modest relief for 
the Single Asset Single Borrower (SASB) market.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                 Congressional Budget Office Estimates

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, May 23, 2016.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4620, the 
Preserving Access to CRE Capital Act of 2016.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Stephen 
Rabent.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

H.R. 4620--Preserving Access to CRE Capital Act of 2016

    Under current law, issuers of securities that are backed by 
a pool of financial assets must retain an economic interest in 
the assets underlying the securities that they issue, a feature 
known as risk retention. H.R. 4620 would exempt from that 
requirement a class of securities related to commercial real 
estate if the securitized mortgage is backed by a loan, or 
group of loans, on commercial properties under common ownership 
or control. (Such securities are known as the Single Asset 
Single Borrower security class.) H.R. 4620 also would exempt 
some qualified commercial real estate loans from the risk-
retention requirement. Finally, H.R. 4620 would change the 
requirements regarding who may purchase residual risk from an 
issuer and how it is retained.
    The bill would direct the federal banking agencies--the 
Federal Reserve, Office of the Comptroller of the Currency 
(OCC), and the Federal Deposit Insurance Corporation (FDIC)--
and the Securities and Exchange Commission (SEC) to issue the 
standards required to qualify for the exemption and those 
agencies would need to revise current regulations concerning 
exemptions to risk-retention requirements.
    Based on information from those four agencies, CBO 
estimates that the costs of revising the regulations would not 
be significant. The SEC is authorized to collect fees 
sufficient to offset its annual appropriation; therefore, CBO 
estimates that the net effect on discretionary spending would 
be negligible, assuming appropriations actions consistent with 
that authority.
    Costs incurred by the FDIC and the OCC are recorded in the 
budget as increases in direct spending. Those two agencies are 
authorized to collect premiums and fees from insured depository 
institutions to cover administrative expenses. CBO expects that 
they would do so to recover any costs associated with amending 
current regulations under the bill. Costs to the Federal 
Reserve System are reflected on the federal budget as a 
reduction in remittances to the Treasury (which are recorded in 
the budget as revenues). Because enacting H.R. 4620 would 
affect direct spending and revenues, pay-as-you-go procedures 
apply. However, CBO estimates that the net effects would be 
insignificant for each year. CBO estimates that enacting H.R. 
4620 would not increase net direct spending or on-budget 
deficits in any of the four consecutive 10-year periods 
beginning in 2027.
    H.R. 4620 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would not affect 
the budgets of state, local, or tribal governments.
    If the SEC, FDIC, or OCC increase fees to offset the costs 
of implementing the bill, H.R 4620 would increase the cost of 
an existing mandate on private entities required to pay those 
fees. Based on information from the affected agencies, CBO 
estimates that the incremental cost of the mandate, if imposed, 
would be minimal and would fall well below the annual threshold 
for private-sector mandates established in UMRA ($154 million 
in 2016, adjusted annually for inflation).
    The CBO staff contact for this estimate is Stephen Rabent. 
The estimate was approved by H. Samuel Papenfuss, Deputy 
Assistance Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    H.R. 4620 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

                    Duplication of Federal Programs

    Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015), 
the Committee states that no provision of H.R. 4620 establishes 
or reauthorizes a program of the Federal Government known to be 
duplicative of another Federal program, a program that was 
included in any report from the Government Accountability 
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance.

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015), 
the Committee states that H.R. 4620 contains one directed 
rulemaking.

             Section-by-Section Analysis of the Legislation


Section 1: Short title

    This section cites H.R. 4620 as the ``Preserving Access to 
CRE Capital Act of 2016''.

Section 2: Exemption for certain commercial real estate loans from risk 
        retention requirements

    This section amends Section 15G of the Securities Exchange 
Act of 1934 to exempt single loan commercial real estate 
securities from the risk retention requirements mandated by the 
Act. In addition, this section exempts qualified commercial 
real estate loans from the risk retention requirements, and 
directs the federal regulators to consider specific standards 
when adopting the qualified commercial real estate loan 
exemption. This section also provides flexibility to structure 
the retained interest to third-party purchases of Commercial 
Mortgage Backed Securities (CMBS).

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

                    SECURITIES EXCHANGE ACT OF 1934




           *       *       *       *       *       *       *
TITLE I--REGULATION OF SECURITIES EXCHANGES

           *       *       *       *       *       *       *



SEC. 15G. CREDIT RISK RETENTION.

  (a) Definitions.--In this section--
          (1) the term ``Federal banking agencies'' means the 
        Office of the Comptroller of the Currency, the Board of 
        Governors of the Federal Reserve System, and the 
        Federal Deposit Insurance Corporation;
          (2) the term ``insured depository institution'' has 
        the same meaning as in section 3(c) of the Federal 
        Deposit Insurance Act (12 U.S.C. 1813(c));
          (3) the term ``securitizer'' means--
                  (A) an issuer of an asset-backed security; or
                  (B) a person who organizes and initiates an 
                asset-backed securities transaction by selling 
                or transferring assets, either directly or 
                indirectly, including through an affiliate, to 
                the issuer; and
          (4) the term ``originator'' means a person who--
                  (A) through the extension of credit or 
                otherwise, creates a financial asset that 
                collateralizes an asset-backed security; and
                  (B) sells an asset directly or indirectly to 
                a securitizer.
  (b) Regulations Required.--
          (1) In general.--Not later than 270 days after the 
        date of enactment of this section, the Federal banking 
        agencies and the Commission shall jointly prescribe 
        regulations to require any securitizer to retain an 
        economic interest in a portion of the credit risk for 
        any asset that the securitizer, through the issuance of 
        an asset-backed security, transfers, sells, or conveys 
        to a third party.
          (2) Residential mortgages.--Not later than 270 days 
        after the date of the enactment of this section, the 
        Federal banking agencies, the Commission, the Secretary 
        of Housing and Urban Development, and the Federal 
        Housing Finance Agency, shall jointly prescribe 
        regulations to require any securitizer to retain an 
        economic interest in a portion of the credit risk for 
        any residential mortgage asset that the securitizer, 
        through the issuance of an asset-backed security, 
        transfers, sells, or conveys to a third party.
  (c) Standards for Regulations.--
          (1) Standards.--The regulations prescribed under 
        subsection (b) shall--
                  (A) prohibit a securitizer from directly or 
                indirectly hedging or otherwise transferring 
                the credit risk that the securitizer is 
                required to retain with respect to an asset;
                  (B) require a securitizer to retain--
                          (i) not less than 5 percent of the 
                        credit risk for any asset--
                                  (I) that is not a qualified 
                                residential mortgage that is 
                                transferred, sold, or conveyed 
                                through the issuance of an 
                                asset-backed security by the 
                                securitizer; or
                                  (II) that is a qualified 
                                residential mortgage that is 
                                transferred, sold, or conveyed 
                                through the issuance of an 
                                asset-backed security by the 
                                securitizer, if 1 or more of 
                                the assets that collateralize 
                                the asset-backed security are 
                                not qualified residential 
                                mortgages; or
                          (ii) less than 5 percent of the 
                        credit risk for an asset that is not a 
                        qualified residential mortgage that is 
                        transferred, sold, or conveyed through 
                        the issuance of an asset-backed 
                        security by the securitizer, if the 
                        originator of the asset meets the 
                        underwriting standards prescribed under 
                        paragraph (2)(B);
                  (C) specify--
                          (i) the permissible forms of risk 
                        retention for purposes of this section;
                          (ii) the minimum duration of the risk 
                        retention required under this section; 
                        and
                          (iii) that a securitizer is not 
                        required to retain any part of the 
                        credit risk for an asset that is 
                        transferred, sold or conveyed through 
                        the issuance of an asset-backed 
                        security by the securitizer, if all of 
                        the assets that collateralize the 
                        asset-backed security are qualified 
                        residential mortgages;
                  (D) apply, regardless of whether the 
                securitizer is an insured depository 
                institution;
                  (E) with respect to a commercial mortgage, 
                specify the permissible types, forms, and 
                amounts of risk retention that would meet the 
                requirements of subparagraph (B), which in the 
                determination of the Federal banking agencies 
                and the Commission may include--
                          (i) retention of a specified amount 
                        or percentage of the total credit risk 
                        of the asset;
                          (ii) [retention of the first-loss 
                        position by a third-party purchaser 
                        that] retention of the first-loss 
                        position by a one or two party third-
                        party purchaser, who may hold the 
                        retention obligation in either a 
                        senior-subordinate structure or pari 
                        passu, provided that each specifically 
                        negotiates for the purchase of such 
                        first loss position, holds adequate 
                        financial resources to back losses, 
                        provides due diligence on all 
                        individual assets in the pool before 
                        the issuance of the asset-backed 
                        securities, and meets the same 
                        standards for risk retention as the 
                        Federal banking agencies and the 
                        Commission require of the securitizer;
                          (iii) a determination by the Federal 
                        banking agencies and the Commission 
                        that the underwriting standards and 
                        controls for the asset are adequate; 
                        and
                          (iv) provision of adequate 
                        representations and warranties and 
                        related enforcement mechanisms; and
                  (F) establish appropriate standards for 
                retention of an economic interest with respect 
                to collateralized debt obligations, securities 
                collateralized by collateralized debt 
                obligations, and similar instruments 
                collateralized by other asset-backed 
                securities; and
                  (G) provide for--
                          (i) a total or partial exemption of 
                        any securitization, as may be 
                        appropriate in the public interest and 
                        for the protection of investors;
                          (ii) a total or partial exemption for 
                        the securitization of an asset issued 
                        or guaranteed by the United States, or 
                        an agency of the United States, as the 
                        Federal banking agencies and the 
                        Commission jointly determine 
                        appropriate in the public interest and 
                        for the protection of investors, except 
                        that, for purposes of this clause, the 
                        Federal National Mortgage Association 
                        and the Federal Home Loan Mortgage 
                        Corporation are not agencies of the 
                        United States;
                          (iii) a total or partial exemption 
                        for any asset-backed security that is a 
                        security issued or guaranteed by any 
                        State of the United States, or by any 
                        political subdivision of a State or 
                        territory, or by any public 
                        instrumentality of a State or territory 
                        that is exempt from the registration 
                        requirements of the Securities Act of 
                        1933 by reason of section 3(a)(2) of 
                        that Act (15 U.S.C. 77c(a)(2)), or a 
                        security defined as a qualified 
                        scholarship funding bond in section 
                        150(d)(2) of the Internal Revenue Code 
                        of 1986, as may be appropriate in the 
                        public interest and for the protection 
                        of investors; and
                          (iv) the allocation of risk retention 
                        obligations between a securitizer and 
                        an originator in the case of a 
                        securitizer that purchases assets from 
                        an originator, as the Federal banking 
                        agencies and the Commission jointly 
                        determine appropriate.
          (2) Asset classes.--
                  (A) Asset classes.--The regulations 
                prescribed under subsection (b) shall establish 
                asset classes with separate rules for 
                securitizers of different classes of assets, 
                including residential mortgages, commercial 
                mortgages, commercial loans, auto loans, and 
                any other class of assets that the Federal 
                banking agencies and the Commission deem 
                appropriate.
                  (B) Contents.--For each asset class 
                established under subparagraph (A), the 
                regulations prescribed under subsection (b) 
                shall include underwriting standards 
                established by the Federal banking agencies 
                that specify the terms, conditions, and 
                characteristics of a loan within the asset 
                class that indicate a low credit risk with 
                respect to the loan.
  (d) Originators.--In determining how to allocate risk 
retention obligations between a securitizer and an originator 
under subsection (c)(1)(E)(iv), the Federal banking agencies 
and the Commission shall--
          (1) reduce the percentage of risk retention 
        obligations required of the securitizer by the 
        percentage of risk retention obligations required of 
        the originator; and
          (2) consider--
                  (A) whether the assets sold to the 
                securitizer have terms, conditions, and 
                characteristics that reflect low credit risk;
                  (B) whether the form or volume of 
                transactions in securitization markets creates 
                incentives for imprudent origination of the 
                type of loan or asset to be sold to the 
                securitizer; and
                  (C) the potential impact of the risk 
                retention obligations on the access of 
                consumers and businesses to credit on 
                reasonable terms, which may not include the 
                transfer of credit risk to a third party.
  (e) Exemptions, Exceptions, and Adjustments.--
          (1) In general.--The Federal banking agencies and the 
        Commission may jointly adopt or issue exemptions, 
        exceptions, or adjustments to the rules issued under 
        this section, including exemptions, exceptions, or 
        adjustments for classes of institutions or assets 
        relating to the risk retention requirement and the 
        prohibition on hedging under subsection (c)(1).
          (2) Applicable standards.--Any exemption, exception, 
        or adjustment adopted or issued by the Federal banking 
        agencies and the Commission under this paragraph 
        shall--
                  (A) help ensure high quality underwriting 
                standards for the securitizers and originators 
                of assets that are securitized or available for 
                securitization; and
                  (B) encourage appropriate risk management 
                practices by the securitizers and originators 
                of assets, improve the access of consumers and 
                businesses to credit on reasonable terms, or 
                otherwise be in the public interest and for the 
                protection of investors.
          (3) Certain institutions and programs exempt.--
                  (A) Farm credit system institutions.--
                Notwithstanding any other provision of this 
                section, the requirements of this section shall 
                not apply to any loan or other financial asset 
                made, insured, guaranteed, or purchased by any 
                institution that is subject to the supervision 
                of the Farm Credit Administration, including 
                the Federal Agricultural Mortgage Corporation.
                  (B) Other federal programs.--This section 
                shall not apply to any residential, 
                multifamily, or health care facility mortgage 
                loan asset, or securitization based directly or 
                indirectly on such an asset, which is insured 
                or guaranteed by the United States or an agency 
                of the United States. For purposes of this 
                subsection, the Federal National Mortgage 
                Association, the Federal Home Loan Mortgage 
                Corporation, and the Federal home loan banks 
                shall not be considered an agency of the United 
                States.
          (4) Exemption for qualified residential mortgages.--
                  (A) In general.--The Federal banking 
                agencies, the Commission, the Secretary of 
                Housing and Urban Development, and the Director 
                of the Federal Housing Finance Agency shall 
                jointly issue regulations to exempt qualified 
                residential mortgages from the risk retention 
                requirements of this subsection.
                  (B) Qualified residential mortgage.--The 
                Federal banking agencies, the Commission, the 
                Secretary of Housing and Urban Development, and 
                the Director of the Federal Housing Finance 
                Agency shall jointly define the term 
                ``qualified residential mortgage'' for purposes 
                of this subsection, taking into consideration 
                underwriting and product features that 
                historical loan performance data indicate 
                result in a lower risk of default, such as--
                          (i) documentation and verification of 
                        the financial resources relied upon to 
                        qualify the mortgagor;
                          (ii) standards with respect to--
                                  (I) the residual income of 
                                the mortgagor after all monthly 
                                obligations;
                                  (II) the ratio of the housing 
                                payments of the mortgagor to 
                                the monthly income of the 
                                mortgagor;
                                  (III) the ratio of total 
                                monthly installment payments of 
                                the mortgagor to the income of 
                                the mortgagor;
                          (iii) mitigating the potential for 
                        payment shock on adjustable rate 
                        mortgages through product features and 
                        underwriting standards;
                          (iv) mortgage guarantee insurance or 
                        other types of insurance or credit 
                        enhancement obtained at the time of 
                        origination, to the extent such 
                        insurance or credit enhancement reduces 
                        the risk of default; and
                          (v) prohibiting or restricting the 
                        use of balloon payments, negative 
                        amortization, prepayment penalties, 
                        interest-only payments, and other 
                        features that have been demonstrated to 
                        exhibit a higher risk of borrower 
                        default.
                  (C) Limitation on definition.--The Federal 
                banking agencies, the Commission, the Secretary 
                of Housing and Urban Development, and the 
                Director of the Federal Housing Finance Agency 
                in defining the term ``qualified residential 
                mortgage'', as required by subparagraph (B), 
                shall define that term to be no broader than 
                the definition ``qualified mortgage'' as the 
                term is defined under section 129C(c)(2) of the 
                Truth in Lending Act, as amended by the 
                Consumer Financial Protection Act of 2010, and 
                regulations adopted thereunder.
          (5) Condition for qualified residential mortgage 
        exemption.--The regulations issued under paragraph (4) 
        shall provide that an asset-backed security that is 
        collateralized by tranches of other asset-backed 
        securities shall not be exempt from the risk retention 
        requirements of this subsection.
          (6) Exemption for certain commercial real estate 
        loans.--
                  (A) Exemption for single loan commercial real 
                estate securitization.--A securitization of a 
                single commercial real estate loan or a group 
                of cross-collateralized or cross-defaulted 
                commercial real estate loans that represent the 
                obligation of one or more related borrowers 
                secured by one or more commercial properties 
                under direct or indirect common ownership or 
                control is exempt from the risk retention 
                requirements of this section.
                  (B) Exemption for qualified commercial real 
                estate loans.--
                          (i) Regulations required.--The 
                        Federal banking agencies and the 
                        Commission shall jointly maintain 
                        regulations to exempt qualified 
                        commercial real estate loans from the 
                        risk retention requirements of this 
                        section.
                          (ii) Standards for regulations.--The 
                        regulations issued under clause (i) 
                        shall--
                                  (I) include the requirements 
                                under which interest-only loans 
                                may be exempt from the risk 
                                retention requirements of this 
                                section;
                                  (II) not impose any term 
                                requirements on the length of a 
                                qualified commercial real 
                                estate loan;
                                  (III) if an amortization 
                                requirement is included, not 
                                impose an amortization schedule 
                                of less than 30 years; and
                                  (IV) not impose separate 
                                loan-to-value ratio caps on 
                                qualified commercial real 
                                estate loans that are 
                                documented with appraisals that 
                                utilize lower capitalization 
                                rates than other loans.
          [(6)] (7) Certification.--The Commission shall 
        require an issuer to certify, for each issuance of an 
        asset-backed security collateralized exclusively by 
        qualified residential mortgages, that the issuer has 
        evaluated the effectiveness of the internal supervisory 
        controls of the issuer with respect to the process for 
        ensuring that all assets that collateralize the asset-
        backed security are qualified residential mortgages.
  (f) Enforcement.--The regulations issued under this section 
shall be enforced by--
          (1) the appropriate Federal banking agency, with 
        respect to any securitizer that is an insured 
        depository institution; and
          (2) the Commission, with respect to any securitizer 
        that is not an insured depository institution.
  (g) Authority of Commission.--The authority of the Commission 
under this section shall be in addition to the authority of the 
Commission to otherwise enforce the securities laws.
  (h) Authority to Coordinate on Rulemaking.--The Chairperson 
of the Financial Stability Oversight Council shall coordinate 
all joint rulemaking required under this section.
  (i) Effective Date of Regulations.--The regulations issued 
under this section shall become effective--
          (1) with respect to securitizers and originators of 
        asset-backed securities backed by residential 
        mortgages, 1 year after the date on which final rules 
        under this section are published in the Federal 
        Register; and
          (2) with respect to securitizers and originators of 
        all other classes of asset-backed securities, 2 years 
        after the date on which final rules under this section 
        are published in the Federal Register.

           *       *       *       *       *       *       *


                             MINORITY VIEWS

    H.R. 4620, the ``Preserving Access to CRE Capital Act of 
2016,'' would weaken the risk retention rules promulgated under 
the Dodd-Frank Wall Street Reform and Consumer Protection Act 
as they apply to the Commercial Mortgage Backed Securities 
(CMBS) market. This bill is yet another piece of legislation 
that deliberately ignores the financial crisis of 2008, the 
failure of the securitization model during that crisis, the 
broad devastation the crisis and the residential mortgage-
backed securities (RMBS) market brought to our economy and the 
millions of Americans who lost their homes. While most 
attention and blame for the crisis fell on the actions in the 
RMBS market, Democrats recall that concerns about the credit 
quality of Lehman Brothers' commercial real estate loan 
warehouse directly led to Lehman's bankruptcy, which 
precipitated the complete shutdown of our credit markets in 
September of 2008.
    Democrats understand that the financial crisis did not only 
expose the weaknesses of the RMBS model, but the entire process 
of securitization. For example, economists at the Federal 
Reserve Bank of New York found that ``investors'' aversion to . 
. . CMBS . . . increased steadily from 2007 and reached 
staggering proportions in late 2008. It reflected anxiety over 
a possible rapid increase in commercial mortgage loan defaults 
driven by the decline in credit standards and high leverage of 
many properties in CMBS loan pools as well as the potential for 
a severe economic downturn.'' Not surprisingly, new issuances 
of CMBS, as with private RMBS, all but disappeared between 2008 
and 2009 as investors fled this market. Investors had learned 
that the underlying commercial mortgages were poorly 
underwritten, with excessive leverage and unrealistic 
appraisals.
    In passing financial reform, Congress recognized that every 
asset-backed security, including CMBS, can fall into the trap 
of ``originate-to-distribute,'' whereby a lender makes a loan 
without regard to whether the borrower can repay because the 
loan can be packaged up into a security and sold to 
unsuspecting investors who bear all the risk. Congress 
realigned the market incentives by requiring either the lender 
or the securitizer of all types of assets, including credit 
cards, commercial loans, auto loans, residential mortgages and 
commercial mortgages, to have ``skin in the game,'' by 
retaining five percent of the credit risk of the security. By 
retaining this slice of the risk, the securitizer becomes more 
concerned with the quality of the underlying loans because its 
money is also at stake.
    Dodd-Frank also recognized that if a security was backed by 
only the most pristine loans, there was no need to require 
``skin in the game;'' however, H.R. 4620 undermines this gold 
standard by expanding the exemption to interest only loans, 
removing term requirements, lengthening amortization 
requirements and removing restrictions designed to limit the 
industry's use of unrealistic appraisals. The bill would also 
create a loophole from the rules by exempting CMBS comprised of 
one or more loans to a single business. When crafting the risk 
retention rule, the financial regulators considered and 
rejected each of the proposals included in H.R. 4620 because, 
after evaluating extensive public comment, they determined that 
they are not in the public interest. And to be clear, 
securitizers can still package up the loans that fail to meet 
the gold standard, but because of the loans' heightened risk, 
they must retain a portion of the credit risk.
    Democrats worked in a bipartisan fashion to put in place 
key reforms to not only prevent a repeat of the 2008 financial 
crisis, but to also eliminate flawed incentives throughout the 
financial markets to prevent future crises. H.R. 4620 would 
undo some of these reforms, and for these reasons, Democrats 
oppose it.

                                   Maxine Waters.
                                   Keith Ellison.
                                   Ruben Hinojosa.

                                  [all]