WASHINGTON, DC-The commercial real estate industry saw many of the provisions it had hoped to incorporate in the financial overhaul included in the final version of the bill, which was hammered out early Friday morning in a conference between the House and Senate. Namely, it includes amendments authored by Sen. Mike Crapo (R-Idaho) to allow regulators to customize the new risk retention mandate for commercial real estate finance. Another measure offered by Rep. Scott Garrett (R-NJ) requiring regulators to consider the combined impact of new reforms and mandates, prior to any rulemaking, is also there, according to the CRE Finance Council, which had been tracking--and lobbying for--these provisions. 

In other respects, the compromises forged in the bill are harder on the financial industry than had been hoped, but not as bad as many had feared. The so-called Volcker rule prohibits banks from investing in risky assets with their own money has been preserved, but has modifications such as allowing limited investments in hedge funds and private equity funds. A provision authored by Sen. Blanche Lincoln (D-AZ) still limits the ability of banks to trade derivatives, but allows them to trade interest rate swaps, some credit derivatives and other vehicles to protect their own risk.

The risk retention language has been particularly dear to the real estate finance community, as it has been viewed as an essential element to restarting the CMBS market. The language in the bill gives regulators choices such as a percent retention, flexible underwriting guidelines and controls and stronger representations and warranties.

Under the provision, regulators must structure reforms by asset class; they also have explicit authority to consider allowing a third-party investor to satisfy a potential retention mandate for commercial mortgage-backed securities. In this scenario, the third-party investor must perform due diligence, purchase a first-loss position and retain this risk in accordance with the statute. Garrett’s amendment would require financial regulators to examine and report on the combined impact of new accounting standards FAS 166 and 167 and other regulatory changes, such as a retention mandate, on credit availability prior to any rulemaking.

Also under the provision, the Federal Reserve, working with other agencies, would have 90 days to report its findings to Congress with recommendations on statutory and regulatory changes that could be made to lessen the impact on credit availability. The CRE Finance Council says this particular revision lessens its fear that the total package of regulatory, legislative and accounting standard reforms currently underway in various venues will be too onerous as a whole. The latter provision, it says, ensures greater consideration coordination among regulators.

Political pundits say the final version of the bill has enough support in both House and Senate to be passed for President Barack Obama’s signature--although the margin will be tight.