Credit Risk Retention Regulation - Comment Letter - Bank of America - August 1, 2011

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Dodd-Frank Timeline, Credit Risk Retention
Proposal Date Re-Proposal Date Comment Deadline
June 10, 2011 August 28, 2013 October 30, 2013

Credit Risk Retention
August 1, 2011

From the comment letter:

  • "First, the Proposed Rule’s B-piece retention option, which allows investment by a third-party purchaser ('B-piece buyer') to satisfy the risk retention requirement in a CMBS transaction, must be modified in several important ways. Among other things, the B-piece buyer must be able to transfer the B-piece subject to certain conditions; otherwise the lack of liquidity for that investment will drive away from the market most, if not all, B-piece buyers and/or push the pricing and discounting for such an illiquid investment to levels that will make borrowing costs for CRE prohibitive. We believe that B-piece transferability can be tailored to attract current players in the B-piece market while still ensuring better quality mortgages with subsequent lower levels of default.
  • Second, the proposed premium capture cash reserve account ('PCCRA') will have the effect of eliminating (or putting at significant risk) the sponsor’s financial incentive to originate and securitize CRE assets. Without a financial incentive to securitize, the CMBS market will severely contract or close completely, thereby significantly reducing liquidity to the CRE market, which will result in lower loan origination and higher borrowing costs.
  • Third, the proposed definitions of CRE loan (which, among other things, determines whether the B-piece retention option is available in a CMBS deal) and qualifying CRE loan (for which zero risk retention is required) need to be adjusted. The vast majority of commercial mortgage loans that are presently securitized would fail to meet the proposed definition of CRE loan because certain common CRE loan characteristics are not accounted for in the present definition."

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