NEW YORK CITY-With the reemerging CMBS market now expected to operate in the world made by Dodd-Frank, the CRE Finance Council on Thursday issued what it says are improved criteria for loan underwriting, additional disclosure and representations and warranties. The industry association has sent copies of its CMBS 2.0 guidelines to federal regulators, including Federal Reserve Board chairman Ben Bernanke and SEC chairman Mary Schapiro.

In a March 23 letter sent over the signatures of CREFC CEO John D’Amico and president Lisa Pendergast, the council notes that “the CMBS market is very different from other asset classes and is experiencing positive developments already.” Nonetheless, D’Amico and Pendergast write, the $3.5-trillion commercial real estate finance industry and the CREFC “remain committed to building on existing safeguards to promote certainty and confidence that will support a timely market resurgence in the short term and a sound and sustainable market in the long term.”

Of particular relevance to CMBS in the Dodd-Frank regime is the so-called “risk-retention” requirement, which mandates that financial institutions hold on to 5% of the credit risk of securitized loans. The CREFC notes that Dodd-Frank offers “a menu of options” that could be employed to satisfy the retention requirement. Among them are: “adequate” representations and warranties and related enforcement mechanisms; adequate underwriting standards and controls; securitizer or originator retention of a specified amount of the total credit risk; or retention of a first-loss position by a third-party purchaser.

In response to the risk-retention mandate, the CREFC has developed what it says are standardized representations and warranties “so that all relevant parties can point to standard concepts, standard language and broad industry acceptance of what will be common practice.” The association says its initiatives specifically address the Dodd-Frank mandate for commercial mortgages by creating standards that can be used in the market immediately, while retention rules would not go into effect for an additional two years after they are finalized. The rules may be available for public comment as early as next week.

Further, the association says it has developed a framework to resolve breach claims through mandatory third-party mediation, which may be initiated by either party prior to commencing any legal action. “Mediation does not preclude such legal action, but it provides a forum in which repurchase demands can be processed in an efficient and timely manner to the benefit of all parties involved,” according to a release.

The CREFC’s CMBS 2.0 guidelines also address the Dodd-Frank requirement for underwriting guidelines that specify the terms, conditions, and characteristics of a loan within the asset class that indicate a low credit risk. It says its underwriting principles and procedures will help generate lower-risk loans, but adds, “the uniqueness of each property requires lenders to appropriately customize their underwriting to reflect the facts and circumstances of each proposed loan.”

In its underwriting guidelines, the CREFC notes that the goal of CMBS is to provide liquidity “not just to trophy properties, but to all markets and properties while appropriately identifying and mitigating those risks. Therefore, it is critically important that lenders conduct a thorough underwriting process that identifies the risks of a proposed loan, sizes and structures the loan in consideration of those risks, and clearly discloses the risks and structural enhancements to investors.” Such transparency, the group says, “will enable investors to understand and price the risk of commercial mortgage pools and regain confidence in securitization vehicles.”