Amendment Reduces 'Skin in the Game' for CMBS

WASHINGTON, DC-The House Financial Services Committee voted unanimously to approve an amendment that reduces the maximum retention–or so-called ‘skin-in-the-game’–requirement from 10% to 5% as well as customize retention provisions for the CMBS market. Observers expect the amendment to the massive Financial Stability Improvement Act of 2009 to move to a full floor vote in mid December. At the same time, the Senate is working on a similar provision–albeit as a slower speed. A discussion draft has been introduced in the Senate, with work currently underway at the committee level to push out a similar change. There will likely be a vote on the full floor at the beginning of next year.

The Commercial Mortgage Securities Association was instrumental in crafting the amendment, which it says will be an incalculable assist to the CMBS industry as it struggles to come back to life. “Hands down this has been a top priority for our association in the regulatory reform bill that is moving forward in Congress,” Brendan T. Reilly, SVP of Government Relations for CMSA, tells GlobeSt.com.

“Our biggest goal in this process has been to ensure that the legislation that is eventually structured addresses each asset class individually,” he says. A ‘one size fits all approach’ – in which regulations covering subprime and other assets such as credit card receivables would unduly impact CMBS–would hinder recovery for the industry, he says. The Minnick amendment–introduced by Reps. Walt Minnick (D-ID) and Melissa Bean (D-IL) explicitly recognizes the important role of third-party investors who purchase the first-loss position and perform due diligence in the CMBS process. The amendment does not preclude retention by the originator/issuer, but instead grants additional flexibility to allow a third-party investor to satisfy the retention requirement. If market participants choose to utilize this method, CMSA explains, the third-party purchaser would be obligated to retain the associated credit risk for its first-loss position in those asset-backed securities.