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[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5816 Introduced in House (IH)]

111th CONGRESS
  2d Session
                                H. R. 5816

   To establish a commercial real estate credit guarantee program to 
     empower community banks and other lenders to make loans while 
  stabilizing the value of small denomination commercial real estate 
                    assets, and for other purposes.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                             July 22, 2010

  Mr. Minnick (for himself, Mr. Shuler, Mr. Simpson, Ms. Kosmas, Mr. 
 LaTourette, Mr. Heinrich, and Mr. Marshall) introduced the following 
    bill; which was referred to the Committee on Financial Services

_______________________________________________________________________

                                 A BILL

 
   To establish a commercial real estate credit guarantee program to 
     empower community banks and other lenders to make loans while 
  stabilizing the value of small denomination commercial real estate 
                    assets, and for other purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Commercial Real Estate Stabilization 
Act of 2010''.

SEC. 2. OVERSIGHT BOARD.

    (a) In General.--There is hereby established the Oversight Board 
(hereinafter in this Act referred to as the ``Board'') to provide 
advice to the Secretary of the Treasury (hereinafter in this Act 
referred to as the ``Secretary'') with regard to the implementation, 
operation, and oversight related to, and in accordance with, the 
Commercial Real Estate Credit Guarantee Program established under 
section 3. The Board is hereby charged particularly in advising the 
Secretary with regard to the development of appropriate underwriting 
guidelines and credit risk assessments in connection with the Program, 
subject to the provisions of section 3(e)(4), and is further charged 
with the design and operation of the Program in such ways as to 
encourage both participation by eligible institutions as well as the 
prompt displacement of the Program by private market interests.
    (b) Membership.--The Board shall consist of the following 9 
members:
            (1) The Secretary.
            (2) The Chairman of the Board of Governors of the Federal 
        Reserve System.
            (3) The Chairman of the Securities Exchange Commission.
            (4) The Chairperson of the Federal Deposit Insurance 
        Corporation.
            (5) The Director of the Federal Housing Finance Agency.
            (6) Four members to be appointed by the President, from 
        among individuals who have comprehensive and practical 
        experience in the financial industry.
    (c) Reports.--Not later than the end of the 3-month period 
beginning on the date of the enactment of this Act, and quarterly 
thereafter, the Board shall issue reports to the Secretary, the 
Committee on Financial Services of the House of Representatives, and 
the Committee on Banking, Housing, and Urban Affairs of the Senate on--
            (1) the Program; and
            (2) the current state of the credit system in the United 
        States with respect to commercial lending, including small 
        business and commercial real estate lending.
    (d) Termination.--The Board shall terminate on the date that is the 
end of the 1-month period following the program termination date.

SEC. 3. COMMERCIAL REAL ESTATE CREDIT GUARANTEE PROGRAM.

    (a) In General.--The Secretary shall establish a Commercial Real 
Estate Credit Guarantee Program (hereinafter in this Act referred to as 
the ``Program'') in accordance with this section.
    (b) Application Process.--
            (1) In general.--A sponsor may apply to have a credit 
        instrument guaranteed under the Program by submitting an 
        application to the Secretary in such form and manner as the 
        Secretary may require.
            (2) Applications approved in order of receipt.--The 
        Secretary shall approve applications submitted pursuant to 
        paragraph (1) by a sponsor for a guarantee of an eligible 
        credit instrument in the order they are received by the 
        Secretary, as long as the guarantees issued under the Program 
        do not relate to credit instruments having an aggregate, 
        cumulative principal balance in excess of $25,000,000,000 
        (exclusive of interest).
            (3) Fifty percent of program to be used for small- and mid-
        sized institutions.--Notwithstanding paragraph (2), not less 
        than 50 percent of the credit instruments guaranteed under the 
        Program, by principal balance, shall be for credit instruments 
        created by eligible institutions specified in subparagraph (A) 
        of the definition of eligible institution, as of the credit 
        instrument issuance date. No more than 50 percent of the credit 
        instruments guaranteed under the Program, by principal balance, 
        shall be for credit instruments created by eligible 
        institutions specified in subparagraph (B) of the definition of 
        eligible institution, as of the credit instrument issuance 
        date.
            (4) Guarantee fee.--In exchange for receiving a credit 
        guarantee under the Program, the related issuer shall pay to 
        the Secretary an up-front or periodic guarantee fee at the rate 
        specified by the Secretary with respect to that specific credit 
        guarantee. Each guarantee fee shall be at least 200 basis 
        points per annum, and shall be the sum of the following three 
        components:
                    (A) The risk component, which shall be no less than 
                100 basis points per annum, 100 basis points per annum 
                being that level used by the risk assessment entities 
                in determining the investment grade status of the 
                related credit instrument (or portion thereof) to be 
                covered by the guarantee; the Board may, or the 
                Secretary may, increase the risk component above such 
                100 basis point per annum level with respect to any 
                individual credit guarantee, in their discretion.
                    (B) An overhead component, which shall be no less 
                than zero, and which shall be determined by the 
                Secretary as being the amount (expressed in basis 
                points per annum) which, in the aggregate when assessed 
                across the Program, will be at least sufficient to fund 
                in full the reasonably estimable costs to the 
                government of staffing and administering the Program, 
                including without limitation, the costs of the Board, 
                the costs of processing applications, the costs 
                (including the costs of the risk assessment entities 
                involved) of developing the underwriting guidelines 
                described in subsection (f) and the costs of legal, 
                accounting and other professional advisors as may be 
                retained by the Board.
                    (C) The market component, which shall be no less 
                than zero, and which shall be determined by the Board, 
                with respect to any individual credit guarantee, as 
                being an amount (expressed in basis points per annum) 
                which, when added to the other two components of the 
                guarantee fee, will encourage the participation of the 
                private market in the provision of credit as an 
                alternative to the guarantees provided under the 
                Program.
    (c) General Program Details.--
            (1) Credit guarantee.--
                    (A) In general.--With respect to a credit 
                instrument that is approved for the Program under 
                subsection (b), the Secretary shall guarantee payments 
                of interest and principal on such credit instrument.
                    (B) Credit instrument defined.--The term ``credit 
                instrument'', as used in this Act, means each and all 
                of the following: a mortgage loan or a participation 
                therein, a bond or certificate backed by one or more 
                mortgage loans or participation interests therein, a 
                guarantee other than a guarantee issued under the 
                Program, or any other lending arrangement (including 
                aggregation facilities) approved by the Secretary upon 
                recommendation of the Board, provided that the ultimate 
                collateral for any such credit instrument is commercial 
                real estate described in subsection (d). In no event 
                shall a credit instrument be eligible for a guarantee 
                under the Program if such credit instrument was issued 
                prior to the effective date of this Act.
                    (C) Recoveries.--The payment by the Secretary under 
                a guarantee shall not discharge the liability of the 
                related issuer with respect to the defaulted payment, 
                and the Secretary shall be fully subrogated to the 
                rights of the owner of the credit instrument to receive 
                the full amount of such defaulted payment from the 
                related issuer, and shall be entitled to receive such 
                amounts from such issuer, subject to the availability 
                of funds thereof.
                    (D) Sunset.--No credit instrument shall be eligible 
                for a guarantee under the Program if such credit 
                instrument is issued after the earlier to occur of--
                            (i) the date that is the end of the 3-year 
                        period beginning on the date on which the first 
                        guarantee is issued under the Program; and
                            (ii) the date on which the Board has 
                        delivered a certification to the Secretary that 
                        the commercial real estate credit market has 
                        recovered to such an extent that the Program is 
                        no longer necessary.
            (2) Timespan of guarantee.--A credit instrument guarantee 
        under the Program shall expire at the end of the 10-year period 
        beginning on the date on which the credit instrument is issued.
            (3) Use of profits.--All profits made from the Program 
        shall be used for deficit reduction.
    (d) Issue Requirements.--In order to be an eligible credit 
instrument for purposes of the Program, the credit instrument must be a 
performing commercial real estate loan, or be backed by one or more 
performing commercial real estate loans which, in either case, at the 
time of the issuance of such credit instrument, are performing 
commercial real estate loans--
            (1) where each loan is either--
                    (A) newly originated, including a new loan on a 
                commercial property which was REO; or
                    (B) a refinancing of an existing loan made by the 
                same borrower;
            (2) for which payments of interest and principal are not 
        past due;
            (3) which has a loan term of 10 years or less, and which 
        amortizes over its terms;
            (4) which was originated within the past 180 days (or other 
        similar time period, to be determined by the Board based on the 
        applicable asset class) preceding the issuance date of such 
        credit instrument; and
            (5) which complies with such other requirements as the 
        Board may specify to ensure that the Program is not used in a 
        manner that was not intended.
    (e) Additional Requirements.--A loan relating to a credit 
instrument, as described in subsection (d), shall meet the following 
criteria:
            (1) Loan originators.--Such loan shall have been originated 
        by an eligible institution as defined in section 5.
            (2) Maximum amount.--The principal amount of such loan must 
        be $10,000,000 or less.
            (3) No requirement for owner-occupied property.--Such a 
        loan may be with respect to either owner-occupied or nonowner-
        occupied commercial real estate.
            (4) Risk assessments and underwriting guidelines.--
                    (A) Risk assessment.--No guarantee shall be issued 
                under the Program unless the application submitted to 
                the Secretary demonstrates that the guarantee fees 
                associated with such guarantee, based upon the credit 
                risk associated with the related credit instrument, 
                shall create reserves sufficient, with regard to that 
                individual credit instrument, to meet the anticipated 
                claims by paying for any related losses and to ensure 
                that the Secretary and the taxpayers are fully 
                protected, based on 2 risk-assessment analyses 
                conducted by 2 independent third-party risk assessment 
                entities.
                    (B) Each such risk assessment shall be conducted by 
                an independent third party approved by the Board. With 
                respect to bonds or certificates backed by pools of 
                commercial real estate assets, or aggregation 
                facilities relating to such assets, such third party 
                may be any nationally recognized statistical rating 
                organization approved by the Board, or any other third-
                party entity which, upon application to the Board and 
                approval by the Board, has a demonstrable expertise in 
                the assessment of credit risk involving pools of 
                commercial real estate assets. With respect to 
                individual commercial real estate loans, such third 
                party may be any entity, including any nationally 
                recognized statistical rating organization, which, upon 
                application to the Board and approval by the Board, has 
                a demonstrable expertise in the assessment of credit 
                risk involving individual commercial real estate 
                assets.
                    (C) No guarantee shall be issued under the Program 
                unless each of the related independent third-party risk 
                assessment entities shall have concluded in writing 
                that the related risk to the Secretary, after taking 
                into account the reserves created by the related 
                guarantee fee, the Secretary's subrogation rights, and 
                the credit characteristics of the related credit 
                instrument, is not less than investment grade, where 
                the term ``investment grade'' shall have its generally 
                understood meaning in the context of the fixed-income 
                investments rated by nationally recognized statistical 
                rating organizations. No guarantee shall be issued 
                under the Program covering a portion or tranche of any 
                credit instrument. Such investment grade risk 
                assessment shall be required on a guarantee-by-
                guarantee basis, and shall not take into account the 
                ``cross-collateralization'' resulting from Program-wide 
                reserves as may be accounted for by the Secretary 
                relating to the Program as a whole.
                    (D) Any third-party risk assessment entity shall be 
                independent of the issuer, sponsor, placement agent, 
                arranger, or underwriter (if any) of the related credit 
                instrument. In approving third-party risk assessment 
                entities, the Board shall, to the maximum extent 
                practicable ensure the inclusion and utilization of 
                minority, women-, and veteran-owned businesses. The 
                cost of each risk assessment shall be paid by the 
                related issuer or the related sponsor, and shall in no 
                event be a cost borne by the Secretary or by the Board.
                    (E) All risk assessments shall be evaluated on the 
                basis of the underlying credit instruments, the level 
                of the guarantee fee and the Secretary's subrogation 
                rights, but shall not take into account the credit 
                support provided by the guarantee itself.
    (f) Underwriting Guidelines.--The Board shall, within 60 days of 
the effective date of this Act, issue standardized underwriting 
guidelines for participation in the Program for credit instruments 
which are individual commercial mortgage loans.
            (1) Such guidelines shall seek to--
                    (A) make the Program a profitable investment for 
                the Government;
                    (B) provide a safety net for more conservative 
                borrowers; and
                    (C) promote the reestablishment of the private 
                credit market for commercial real estate.
            (2) Such guidelines shall be developed with the assistance 
        of not fewer than 3 independent risk assessment entities 
        approved by the Board, which shall have each concluded that 
        bonds or certificates backed by pools containing performing 
        commercial real estate loans meeting such underwriting 
        guidelines would be rated at least investment grade if the risk 
        of the related guarantee fee were 100 basis points per annum.
    (g) Risk Retention.--The Board shall, within 60 days of the 
effective date of this Act, by regulation, require the related issuer 
or sponsor or a third-party purchaser that has specifically negotiated 
for the purchase of such economic interest and has conducted due 
diligence on such loan or pool of loans, in each case to retain an 
economic interest in a portion of the credit risk for each loan or pool 
of loans as prescribed in section 941(b) of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act. For the avoidance of doubt, the 
forms of such economic interest shall include, but are not limited to, 
subordinated excess interest strips, subordinated principal, and 
subordinated securities. Such regulations shall further provide that 
the owner of such economic interest not directly or indirectly hedge or 
otherwise transfer the required credit risk, and shall specify the 
minimum duration of the risk retention required under this subsection.
    (h) Reporting.--
            (1) In general.--Not later than the end of the 180-day 
        period beginning on the date of the enactment of this Act, and 
        quarterly thereafter, the Secretary shall issue a report to the 
        Congress containing a review of credit instruments being 
        guaranteed under the Program and information on the loans and 
        properties backing such credit instruments, including the 
        number of loans and properties, the value of the loans and 
        properties, and information on the performance of the loans and 
        properties.
            (2) Public availability.--The Secretary shall make all 
        reports made under paragraph (1) available to the public, 
        including on a Web site.
    (i) Status of Guaranties.--All guarantees issued pursuant to this 
section shall constitute general obligations of the United States, for 
which the full faith and credit of the United States is pledged. All 
such guarantees shall be treated as ``loan guarantees'' under section 
502(3) of the Federal Credit Reform Act of 1990.

SEC. 4. FUNDING.

    (a) In General.--There is hereby authorized to be appropriated, out 
of funds in the Treasury not otherwise appropriated, in addition to 
such amounts as may be necessary for the reasonable costs of 
administering the Program, such sum as may be necessary to issue 
guarantees of credit instruments having an aggregate, cumulative 
principal balance not in excess of $25,000,000,000, as determined in a 
manner consistent with the Federal Credit Reform Act of 1990.
    (b) Guarantees Not Under TARP.--The guarantees provided for 
hereunder are established as a separate and distinct program from the 
guarantees described in section 102 of the Emergency Economic 
Stabilization Act of 2008. No eligible institution, sponsor, or issuer 
shall be considered a recipient of the Troubled Asset Relief Program 
solely by virtue of participation in the Program.
    (c) Program Utilization To Be Encouraged.--
            (1) The Congress finds that, with respect to the smaller 
        insured depository institutions, the lingering financial crisis 
        and lack of liquidity and leverage in the commercial real 
        estate market has resulted in a substantial number of small 
        bank failures, with the result that the FDIC and its Deposit 
        Insurance Fund have absorbed many of the resulting losses. The 
        Congress has concluded that the Program established under this 
        Act is, under certain circumstances, a preferred approach to 
        this problem, as opposed to continued reliance on the FDIC's 
        resolution authority, which was never intended to provide 
        liquidity and leverage to the commercial real estate markets.
            (2) The Congress further finds that the utilization of this 
        Program by smaller depository institutions may be inhibited due 
        to concerns that the credit issuance transactions contemplated 
        by this Act may, under current rules and regulations governing 
        loss recognition, regulatory capital, and related accounting 
        matters, result in unfavorable regulatory accounting treatment 
        to such institutions, notwithstanding the other benefits 
        accruing to such institutions, the commercial real estate 
        markets and the economy at large by the utilization of this 
        Program. In addition, the Congress specifically finds that the 
        requirements of FAS 166/167 shall not be applicable to the 
        Program, provided that any assets or liabilities created by the 
        issuance of securities under the Program shall be reasonably 
        and adequately disclosed.
            (3) Consequently, it is the intent of the Congress that 
        this Program be utilized when such utilization otherwise proves 
        beneficial, and that, in such cases, utilization not be unduly 
        inhibited by concerns related to potential unfavorable 
        regulatory accounting treatment. In furtherance of such 
        Congressional intent, the Board is directed to confer with the 
        Chairperson of the FDIC, representatives of the Conference of 
        State Banking Supervisors, representatives of the Financial 
        Accounting Standards Board, and representatives of the 
        community banking industry, with the result that the FDIC shall 
        issue, within 60 days of the enactment of this Act, such rules 
        and regulations as are consistent with such Congressional 
        intent stated herein.
            (4) Additionally, in order to ensure that State foreclosure 
        laws do not contravene the mechanics and operational efficiency 
        of this Program, all loans backing bonds issued under this 
        Program shall be subject to an expedited Federal court 
        foreclosure process should such loans default. The underlying 
        documentation need not specify foreclosure remedies, and in 
        furtherance of the Congressional intent described above, such 
        foreclosure action instituted in Federal court shall be subject 
        to removal to State court. No such foreclosure action shall be 
        stayed as a result of the bankruptcy of the related borrower.

SEC. 5. OTHER DEFINITIONS.

    For purposes of this Act:
            (1) Board.--The term ``Board'' means the Oversight Board 
        established under section 2.
            (2) Cost.--The term ``cost'' has the meaning given such 
        term under section 502(5)(A) of the Federal Credit Reform Act 
        of 1990, as amended.
            (3) Effective date.--The term ``effective date'' shall mean 
        the date on which the provision of this Act becomes law.
            (4) Eligible institution.--The term ``eligible 
        institution'' means, for purposes of this Act, either--
                    (A)(i) any insured depository institution, which--
                            (I) is not controlled by a bank holding 
                        company or savings and loan holding company 
                        that is also an eligible institution;
                            (II) has total assets of equal to or less 
                        than $10,000,000,000, as reported in the call 
                        report as of the end of the fourth quarter of 
                        the most recently ended year for such fourth-
                        quarter call report is available; and
                            (III) is not directly or indirectly 
                        controlled by any company or other entity that 
                        has total consolidated assets of more than 
                        $10,000,000,000, as so reported;
                    (ii) any bank holding company which has total 
                assets of equal to or less than $10,000,000,000;
                    (iii) any savings and loan holding company which 
                has total assets of equal to or less than $10,000,000; 
                or
                    (B) any entity not described in subparagraph (A) 
                above and which the Board has not determined is 
                ineligible to participate in the Program.
            (5) Insured depository institution.--The term ``insured 
        depository institution'' has the meaning given such term under 
        section 3(c)(2) of the Federal Deposit Insurance Act (12 U.S.C. 
        1813(c)(2)).
            (6) Issuer.--The term ``issuer'' means either--
                    (A) with respect to a credit instrument which is an 
                individual mortgage loan or a participation interest in 
                an individual mortgage loan (including a new loan on a 
                commercial property which was REO or a refinancing of 
                an existing loan made by the same borrower), or a 
                guarantee of an individual mortgage loan, the related 
                borrower; or
                    (B) with respect to a credit instrument which is a 
                bond or certificate, or with respect to a guarantee 
                relating to a pool of mortgage loans, participation 
                interests in mortgage loans (including a new loan on a 
                commercial property which was REO or a refinancing of 
                an existing loan made by the same borrower), a 
                ``special purpose vehicle'' entity (such as a trust or 
                limited liability company) that issues such a credit 
                instrument;
        in each case that is guaranteed under the Program.
            (7) Program.--The term ``Program'' means the commercial 
        real estate credit guarantee program established under section 
        3.
            (8) REO.--The term ``REO'' means, with respect to an 
        eligible institution, any real property to which such eligible 
        institution holds title pursuant to foreclosure, a deed of lieu 
        of foreclosure, assignment, conveyance, or any other action in 
        connection with a mortgage made, held, insured, guaranteed, or 
        securitized by such eligible institution.
            (9) Sponsor.--The term ``Sponsor'' ``'' means, in the case 
        of a securitization or aggregation arrangement, an entity 
        that--
                    (A) securitizes commercial real estate loans and 
                that has met the Board's expertise requirements for 
                participation in the Program, provided that the 
                Sponsor's management expertise and previous bond 
                performance will be strongly considered as part of the 
                Sponsor's approval process;
                    (B) forms an issuer; and
                    (C) creates the credit instruments issued by the 
                issuer under the Program (and the sponsor described 
                herein may also be an eligible institution with respect 
                to the related loans).
            (10) Program termination date.--The term ``program 
        termination date'' means the date on which the last credit 
        instrument has been paid in full (disregarding for this purpose 
        any amounts owed to the Secretary on account of the Secretary's 
        subrogation rights).
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