The terrorist attacks of Sept. 11, 2001 resulted in pervasive uncertainty in the insurance markets regarding insurance providers' potential liability associated with future acts. To address this uncertainty, the federal terrorism reinsurance program, which allows for the federal government to pay 90% of any losses from an attack after a deductible is satisfied and a $5 million claims threshold is met, was signed into law on Nov. 26, 2002 . This program is due to expire at the end of this year.

The Mortgage Bankers Association is part of a large task force of industries, called the Coalition to Insure Against Terrorism, which supports the extension of TRIA beyond its 2005 sunset date. The program has been effective in stabilizing the market for commercial and multifamily terrorism insurance and has become widely accepted by the real estate industry. Because lenders typically finance 80% of the value of a property, failure to extend TRIA would result in a shift in the liability to the lenders who finance these properties.

In the spring of 2004, we surveyed loan administrators who serviced more than $656 billion in commercial real estate debt outstanding. This was in response to a request by the US Treasury Department to gather urgently needed information on the effectiveness of TRIA. Some results include:

• Of the $656 billion commercial/multifamily debt reviewed, $616 billion, or 94%, was required to have terrorism insurance by the mortgage investor or servicer.

• A full $548 billion, or 84% of the outstanding balance of the commercial/multifamily debt reviewed, had terrorism insurance in place.

• Insurance specialists at every loan servicer involved in the study stated that without an effective TRIA, terrorism endorsements that are currently in place would be cancelled or excluded.

• Insurance specialists estimated that if the so-called make-available provision of TRIA--making terrorism insurance a requirement beyond Dec. 31, 2004 --had not been extended last year by Treasury Secretary John Snow, only 20% or $132 billion of their collective portfolios would have retained terrorism risk-insurance coverage. This represents a reduction of 76%, or $416 billion in the balance of loans that would be covered for losses due to terrorism.

On Feb. 18, 2005 , S. 467, the Terrorism Insurance Backstop Extension Act of 2005, was introduced by Senators Dodd (D-CT) and Bennett (R-UT). The bill would reauthorize and extend the federal terrorism reinsurance program provided by the Terrorism Risk Insurance Act of 2002. Similarly, on Mar. 8, 2005 H.R. 1153 was introduced by Congressmen Capuano (D-MA); Israel (D-NY); Frank (D-MA); Kanjorski (D-PA); and Crowley (D-NY).

There seems to be a growing congressional recognition for the vital role TRIA plays in maintaining the stability of the commercial real estate finance industry. Its re-enactment is crucial to continuing American economic recovery because of the importance of adequate terrorism insurance to commercial and multifamily property lenders and to the businesses and families who occupy commercial and multifamily real estate.

The rebuilding of American businesses and rental housing in the wake of a terrorist attack demands adequate terrorism insurance. It is becoming increasingly apparent that as time moves on without the extension of TRIA, the number of transactions occurring within the commercial real estate finance industry will decrease due to the lack of availability of terrorism insurance.

Additionally, without an extended TRIA, it is likely that the ratings agencies will be lowering ratings on loans in the CMBS market as they did after the events of Sept. 11 and before the legislation. TRIA allows commercial-mortgage borrowers to obtain terrorism-insurance coverage at a reasonable cost and it satisfies terrorism insurance requirements of commercial servicers.

As acknowledged by Federal Reserve chairman Alan Greenspan, the private market alone cannot adequately insure against this continuing threat. Congress must act now to provide certainty that terrorism insurance will be available into next year and beyond. Subsequently, on April 14, the Senate Banking Committee is expected to hold a hearing to discuss TRIA. Additionally, House majority leader Tom Delay (R-TX) has stated that he looks forward to working with the industry to discuss proposals for extension with a view toward developing a long-term market solution.

Gail Davis Cardwell is senior vice president, commercial/multifamily, for the Washington, DC-based Mortgage Bankers Association.

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