I

103D CONGRESS

1ST SESSION H. R. 3642

To provide regulatory capital guidelines for treatment of real estate assets

sold with limited recourse by depository institutions.

IN THE HOUSE OF REPRESENTATIVES

NOVEMBER 22, 1993

Mr. FRANK of Massachusetts (for himself, Mr. BAKER of Louisiana, Mr.

MORAN, Mr. LEACH, Mr. FLAKE, Mr. MCCOLLUM, and Mr. LAROCCO)

introduced the following bill; which was referred jointly to the Committees

on Banking, Finance and Urban Affairs, and Energy and Commerce

A BILL

To provide regulatory capital guidelines for treatment of

real estate assets sold with limited recourse by depository

institutions.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Commercial Mortgage

5 Capital Availability Act of 1993’’.
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1 SEC. 2. INSURED DEPOSITORY INSTITUTION CAPITAL RE2 QUIREMENTS FOR TRANSFERS OF MORT3 GAGE LOANS.

4 (a) ACCOUNTING PRINCIPLES.—The accounting prin5 ciples applicable to the transfer of a mortgage loan with

6 recourse contained in reports or statements required to be

7 filed with Federal banking agencies by a qualified insured

8 depository institution shall be consistent with generally ac9 cepted accounting principles.

10 (b) CAPITAL AND RESERVE REQUIREMENTS.—With

11 respect to the transfer of a mortgage loan with recourse

12 that is a sale under generally accepted accounting prin13 ciples, each qualified insured depository institution shall—

14 (1) establish and maintain a reserve equal to an

15 amount sufficient to meet the reasonable estimated

16 liability of the institution under the recourse ar17 rangement; and

18 (2) treat as an asset (for purposes of applicable

19 capital standards and other capital measures, includ20 ing risk-based capital requirements) only the maxi21 mum amount at risk under the recourse arrange22 ment.

23 (c) QUALIFIED INSTITUTIONS DEFINED.—An in24 sured depository institution is a qualified insured deposi25 tory institution for purposes of this section if, without re-
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1 gard to the accounting principles or capital requirements

2 referred to in subsections (a) and (b), the institution is—

3 (1) well capitalized; or

4 (2) with the approval, by regulation or order, of

5 the appropriate Federal banking agency, adequately

6 capitalized.

7 (d) AGGREGATE AMOUNT OF RECOURSE.—The total

8 outstanding amount at risk with respect to transfers of

9 mortgage loans under subsections (a) and (b) (together

10 with the amount at risk under any provisions of law sub11 stantially similar to subsections (a) and (b)) shall not ex12 ceed—

13 (1) the amount which is equal to 15 percent of

14 the risk-based capital of the institution; or

15 (2) such greater amount, as established by the

16 appropriate Federal banking agency by regulation or

17 order.

18 (e) INSTITUTIONS THAT CEASE TO BE QUALIFIED

19 OR EXCEED AGGREGATE LIMITS.—If an insured deposi20 tory institution ceases to be a qualified insured depository

21 institution or exceeds the limits under subsection (d), this

22 section shall remain applicable to any transfer of mortgage

23 loans that occurred at a time when the institution was

24 qualified and had not exceeded such limit.
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1 (f) PROMPT CORRECTIVE ACTION NOT AFFECTED.—

2 The capital of an insured depository institution shall be

3 computed without regard to this section in determining

4 whether the institution is less than well capitalized.

5 (g) REGULATIONS REQUIRED.—Before the end of the

6 180-day period beginning on the date of the enactment

7 of this Act, each appropriate Federal banking agency shall

8 prescribe final regulations implementing this section.

9 (h) ALTERNATIVE SYSTEM PERMITTED.—

10 (1) IN GENERAL.—At the discretion of the ap11 propriate Federal banking agency, this section shall

12 not apply if the regulations of the agency provide

13 that the aggregate amount of capital and reserves

14 required with respect to the transfer of mortgage

15 loans with recourse does not exceed the aggregate

16 amount of capital and reserves that would be re17 quired under subsection (b).

18 (2) EXISTING TRANSACTIONS NOT AF19 FECTED.—Notwithstanding paragraph (1), this sec20 tion shall remain in effect with respect to transfers

21 of mortgage loans with recourse by qualified insured

22 depository institutions occurring before the effective

23 date of regulations referred to in paragraph (1).

24 (i) DEFINITIONS.—The following definitions apply

25 for purposes of this section:
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1 (1) ADEQUATELY CAPITALIZED.—The term

2 ‘‘adequately capitalized’’ has the same meaning as in

3 section 38(b) of the Federal Deposit Insurance Act.

4 (2) APPROPRIATE FEDERAL BANKING AGEN5 CY.—The term ‘‘appropriate Federal banking agen6 cy’’ has the same meaning as in section 3 of the

7 Federal Deposit Insurance Act.

8 (3) CAPITAL STANDARDS.—The term ‘‘capital

9 standards’’ has the same meaning as in section

10 38(c) of the Federal Deposit Insurance Act.

11 (4) FEDERAL BANKING AGENCIES.—The term

12 ‘‘Federal banking agencies’’ has the same meaning

13 as in section 3 of the Federal Deposit Insurance

14 Act.

15 (5) INSURED DEPOSITORY INSTITUTION.—The

16 term ‘‘insured depository institution’’ has the same

17 meaning as in section 3 of the Federal Deposit In18 surance Act.

19 (6) OTHER CAPITAL MEASURES.—The term

20 ‘‘other capital measures’’ has the same meaning as

21 in section 38(c) of the Federal Deposit Insurance

22 Act.

23 (7) RECOURSE.—The term ‘‘recourse’’ has the

24 meaning given to such term under generally accept25 ed accounting principles.
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1 (8) MORTGAGE LOAN.—The term ‘‘mortgage

2 loan’’ means any—

3 (A) note or certificate of interest or par4 ticipation in a note (including any rights de5 signed to assure servicing of, or the timeliness

6 of receipt by the holders of such notes, certifi7 cates, or participation of amounts payable

8 under such notes, certificates or participation)

9 that is principally secured by an interest in real

10 property; or

11 (B) any security (within the meaning of

12 section 8 of the Securities Exchange Act of

13 1934) that is secured by one or more notes de14 scribed in subparagraph (A) or certificates of

15 interest or participation in such notes (with or

16 without recourse to issuers thereof) and that,

17 by its terms, provides for payments of principal

18 in relation to payments, or reasonable projec19 tions of payments, on notes described in sub20 paragraph (A) or certificates of interest or par21 ticipation in such notes.

22 (9) WELL CAPITALIZED.—The term ‘‘well cap23 italized’’ has the same meaning as in section 38(b)

24 of the Federal Deposit Insurance Act.
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1 SEC. 3. AMENDMENT TO DEFINITION OF MORTGAGE RE2 LATED SECURITY.

3 Section 3(a)(41)(A)(i) of the Securities Exchange Act

4 of 1934 (15 U.S.C. 78c(a)(41)(A)(i)) is amended by in5 serting before the semicolon ‘‘, or on 1 or more parcels

6 of real estate upon which is located one or more commer7 cial structures’’.

8 SEC. 4. AUTHORITY TO EXEMPT COMMERCIAL MORTGAGE

9 RELATED SECURITIES TRANSACTIONS FROM

10 PROHIBITED TRANSACTION RULES.

11 The Secretary of Labor, in consultation with the Sec12 retary of the Treasury, shall exempt, either uncondition13 ally or on stated terms and conditions, transactions involv14 ing commercial mortgage related securities (as such term

15 is defined in section 3(a)(41) of the Securities Exchange

16 Act of 1934, as amended by section 3 of this Act) from—

17 (1) the restrictions of sections 406(a) and

18 407(a) of the Employee Retirement Income Security

19 Act of 1974; and

20 (2) the taxes imposed under section 4975 of the

21 Internal Revenue Code of 1986.
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1 SEC. 5. PROVISIONS TO SAFEGUARD THE INTEGRITY OF

2 THE SECURITIZATION PROCESS, AND THE

3 SAFETY AND SOUNDNESS OF FEDERALLY IN4 SURED INSTITUTIONS.

5 (a) COMPLIANCE WITH SECURITIES REGULA6 TIONS.—Any security relying on the provisions of this Act

7 shall comply with all rules and regulations of Federal secu8 rities laws applicable thereto, as determined taking into

9 account the provisions of this Act, including all provisions

10 relating to required disclosure to investors, registrations,

11 reporting and compliance, and all anti-fraud provisions.

12 (b) TREATMENT OF BANK ISSUED OR PURCHASED

13 MORTGAGE BACKED SECURITIES FOR PURPOSES OF MIN14 IMUM CAPITAL REQUIREMENTS.—

15 (1) MORTGAGES HELD BY BANK TO BACK SE16 CURITIES.—If an issue of securities backed by mort17 gage loans represents a liability on the balance sheet

18 of an insured depository institution and the assets

19 backing such obligation represent assets on the bal20 ance sheet of such institution, the institution shall

21 maintain minimum adequate capital with regard to

22 such assets as prescribed by all applicable rules and

23 regulations of the banking agencies with supervisory

24 and examination authority over such institution, as

25 determined taking into account the provisions of this

26 Act.
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1 (2) SECURITIES HELD BY BANK.—If an insured

2 depository institution purchases a mortgage-related

3 security to which the provisions of this Act apply,

4 the institution shall maintain minimum adequate

5 capital with respect to such security and all other

6 assets as prescribed by all applicable rules and regu7 lations of the banking agencies with supervisory and

8 examination authority over such institution, as de9 termined taking into account the provisions of this

10 Act.

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