Restoring American Finacial Stability Act of 2010

Floor Speech

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Mr. CRAPO. Mr. President, this is a second-degree amendment to the Landrieu-Isakson amendment. It is not a competing amendment; it is an amendment to add additional provisions. I support the material in the Landrieu-Isakson amendment, which deals with the home mortgage market. This amendment has further provisions in the same section of the bill to deal with risk-retention issues relating to the commercial real estate market and other asset classes.

According to market analysts and financial regulators, the provisions aimed at the securitized credit market in this bill will undoubtedly impact access to credit for millions of American consumers and businesses.

These issues--such as ``risk retention''--are very complicated.

The reforms are aimed at the ``residential and subprime'' market, and I am quite concerned that have not been carefully examined for all markets.

Additionally, they are have not been reviewed in the context of other moving parts outside the bill, such as changing accounting standards, capital requirements, other regulatory mandates, etc.

When combined, these significant changes create a huge amount of ``uncertainty'' in the market, which today serves one of the greatest impediments to new and private lending and investing.

The stakes are high. As Treasury Secretary Geithner has stressed, ``no financial recovery plan will be successful unless it helps restart securitization markets for sound loans made to consumers and businesses--large and small.''

Yet, the ``totality'' of regulatory and account changes impact the future viability of these markets. In fact, both market participants and financial regulators agree that the outcome is unclear in both the short and long term. The ``warning signs'' are there and cannot be ignored after comments by the Fed, the OCC, the FDIC, and the International Monetary Fund, among others.

As such, we must carefully examine any new mandates to determine the most appropriate and direct way to strengthen our lending markets, and to better serve consumers and businesses, while avoiding negative complications.

Such reforms are very important, and it is critical that we get them right.

This ``middle ground'' approach has two basic components:

First, because ``skin-in-the-game'' is important and can come in many forms, the proposed language improves the existing framework--using the current language and construct in the Dodd bill--and requires the regulators to examine and consider equally which method of ``skin-in-the-game'' is most appropriate:

A percent retention; Underwriting standards; strong, standardized and disclosed ``representations and warranties''; Other methods--e.g. a ``third party'' retention for CMBS in the ``Minnick-Bean-Moore-Adler-Campbell-Miller amendment that passed in the House unanimously--or the like.

Second, it clarifies existing language in the bill that requires reforms to be considered by ``asset class.''

Under the Landrieu amendment, the regulators shall create the ``qualified mortgage'' framework important to the residential market.

Under this secondary amendment, the regulators shall consider the appropriate forms of retention by ``asset class'' and type of loan--as well as risk profile associated with it. This would include allowing the regulators to consider using and strengthening a ``third party'' retention framework that is important to CMBS and CRE market participants.

Ultimately, we think such an overall amendment is important because it comprehensively addresses all asset classes, (residential and commercial mortgages, student loans, auto loans, etc.) and helps to have a better format for approaching risk retention.

What the amendment does is take the exclusive focus off of just one form of risk retention and allows the regulator to evaluate the best approach to address risk retention by asset class.

This still includes a percent retention (if necessary), as well as underwriting standards that actually get at the heart of the loans and even strong and uniform ``representations and warranties''--which are important to the investors--such as pension funds, mutual funds and endowments--who fuel lending in the securitized credit markets.

The amendment simply gives important direction to the regulators on structuring reforms by ``asset class.'' This is critical in the context of conflicting rules and proposals aimed at these markets--some of which prejudge or disregard the House and Senate language in this area.

Most important, when taken with the Landrieu amendment, it would address and encourage well underwritten loans--including the ``qualified mortgage'' framework--as well as uniqueness of very different markets--such as commercial real estate, auto loans, student loans, etc.

And, by avoiding a single asset ``carve-out'' for just ``residential,'' it simply allows the regulators to customize ``skin-in-the-game'' for all asset classes--particularly ones that were not a ``root case'' or ``systemic risk''. This protects consumers and businesses that are struggling to get access to credit.

Without ``reinventing the wheel'' on the Dodd bill, this approach provides important reforms, while avoiding negative complications concerning capital, liquidity and credit availability--particularly in the commercial real estate market, which faces challenges and has a very different structure.

Such an approach is crucial for business and consumer credit, and for an overall economic recovery.

And, for that reason, it is supported by lenders of all sizes and in all markets, commercial borrowers who have been active on this issue, and investors who fuel lending and are seeking certainty and confidence.

Lastly, some of the language in this bill, particularly related to the commercial mortgage market, passed the House Financial Services Committee unanimously, as offered by Representatives Minnick, Bean, Adler, Moore, Campbell, and Miller.

I urge all my colleagues to accept this amendment as an addition to the Landrieu-Isakson amendment, not a change of it, to help us address more than simply the issues dealing with the residential real estate market but also, and most important, the commercial real estate market and other asset classes.

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Mr. CRAPO. Mr. President, I appreciate the chairman's remarks and willingness to work on this amendment. We are both trying to get at the same thing. I believe we can work out the questions with regard to the language so we can move forward in a fashion that will help us to address these problems to make sure the ultimate objective, on which we all agree--namely, making sure we have confidence in the quality of the assets that are utilized in securitization--is achieved.

I welcome that opportunity and look forward to working with the chairman.

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