II

103D CONGRESS

1ST SESSION S. 1728

To provide regulatory capital guidelines for treatment of real estate assets

sold with limited recourse by depository institutions.

IN THE SENATE OF THE UNITED STATES

NOVEMBER 19 (legislative day, NOVEMBER 2), 1993

Mr. BRYAN (for himself and Mr. DOMENICI) introduced the following bill;

which was read twice and referred to the Committee on Banking, Housing and Urban Affairs

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 CRITERIA.—An in24 sured depository institution is a qualified insured deposi25 tory institution for purposes of this section if, without re-
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•S 1728 IS

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) 15 percent of the risk-based capital of the

14 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 during the time that the institution

24 was qualified and did not exceed 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 adequately capitalized,

5 undercapitalized, significantly undercapitalized, or criti6 cally undercapitalized under section 38 of the Federal De7 posit Insurance Act.

8 (g) REGULATIONS REQUIRED.—Not later than 180

9 days after the date of the enactment of this Act, each ap10 propriate Federal banking agency shall promulgate final

11 regulations implementing this section.

12 (h) ALTERNATIVE SYSTEM PERMITTED.—

13 (1) IN GENERAL.—This section shall not apply

14 if, at the discretion of the appropriate Federal bank15 ing agency, the regulations of the agency provide

16 that the aggregate amount of capital and reserves

17 required with respect to the transfer of mortgage

18 loans with recourse does not exceed the aggregate

19 amount of capital and reserves that would be re20 quired under subsection (b).

21 (2) EXISTING TRANSACTIONS NOT AF22 FECTED.—Notwithstanding paragraph (1), this sec23 tion shall remain in effect with respect to transfers

24 of mortgage loans with recourse by qualified insured
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1 depository institutions occurring before the effective

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

3 (i) DEFINITIONS.—For purposes of this section—

4 (1) the term ‘‘adequately capitalized’’ has the

5 same meaning as in section 28(b) of the Federal De6 posit Insurance Act;

7 (2) the term ‘‘appropriate Federal banking

8 agency’’ has the same meaning as in section 3 of the

9 Federal Deposit Insurance Act;

10 (3) the term ‘‘capital standards’’ has the same

11 meaning as in section 38(c) of the Federal Deposit

12 Insurance Act;

13 (4) the term ‘‘Federal banking agencies’’ has

14 the same meaning as in section 3 of the Federal

15 Deposit Insurance Act;

16 (5) the term ‘‘insured depository institution’’

17 has the same meaning as in section 3 of the Federal

18 Deposit Insurance Act;

19 (6) the term ‘‘other capital measures’’ has the

20 same meaning as in section 38(c) of the Federal

21 Deposit Insurance Act;

22 (7) the term ‘‘recourse’’ has the meaning given

23 to such term under generally accepted accounting

24 principles;

25 (8) the term ‘‘mortgage loan’’ means—
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1 (A) a note or certificate of interest or par2 ticipation in a note (including any rights de3 signed to assure servicing of, or the timeliness

4 of receipt by the holders of such notes, certifi5 cates, or participation of amounts payable

6 under such notes, certificates or participation)

7 that is principally secured by an interest in real

8 property; or

9 (B) a security (as such term is defined in

10 section 8 of the Securities Exchange Act of

11 1934) that is secured by one or more notes de12 scribed in subparagraph (A) or certificates of

13 interest or participation in such notes (with or

14 without recourse to issuers thereof) and that,

15 by its terms, provides for payments of principal

16 in relation to payments, or reasonable projec17 tions of payments, on notes described in sub18 paragraph (A) or certificates of interest or par19 ticipation in such notes; and

20 (9) the term ‘‘well capitalized’’ has the same

21 meaning as in section 38(b) of the Federal Deposit

22 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 one 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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