More than a month ago, the 2,300-plus page Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law. It will be months, possibly years, before the full impact of the law is realized, not only in commercial real estate finance but also in other forms of business lending and credit, as well as consumer rights.

For example, the Federal Deposit Insurance Corp. is evaluating the different options to replace private credit ratings in its review of bank capital levels. Regulators have a year to review and replace this key metric. How it will affect banks' lending at this point is anyone's guess. In the more immediate term, the Federal Reserve is conducting a 90-day study to gauge the law's impact on the market. That study is not quite at the half-way mark yet.

That said, there are some tips borrowers can follow to prepare for the changes, whatever they may be. For the most part, these merely highlight the immense amount of uncertainty that is ahead. However, it is better to be prepared for that than assume it is business as usual, or worse, that the new regulations will usher in a new era of clear-cut lending.

1. Don't expect the uncertainty that led up to the bill to be dispelled until the regulations are written. Even after combing through the bill for the past month, the industry is still unclear on what it will mean for some key points. That is because, says professor David Reiss of Brooklyn Law School, "regulators have been left with a lot of discretion as to how to implement the particulars contained in the law." For example, he points to the most significant provision, in his opinion: requiring issuers of CMBS to retain a percentage of the debt that they securitize, the so-called skin-in-the-game provision.

"This general requirement may be modified by regulators in certain cases and for certain asset classes," he notes. "The language in the law states that, in addition to holding a percentage of the risk, these retention requirements could also be met by adequate 'underwriting standards and controls' or 'adequate representations and warranties and related enforcement mechanisms: "

The law also gives regulators the ability to allow adequately capitalized third-party investors in the B piece of a CMBS to retain the risk instead of the issuer, Reiss says. "If

this indeed is allowed, CMBS securitizations will look fundamentally the same as they did before the bill was passed," he explains. "So until regulators promulgate

rules, there will be a lot of uncertainty as to how this will play out in the CMBS context."

Indeed, despite the fierce lobbying on the part of the industry, namely by the Commercial Real Estate Finance Council, to carve out specific regulations for these securities, much is still undecided. For example, Brian Lancaster, the head of MBS, CMBS and ABS Strategies with RBS, testified before the House Financial Services Committee on behalf of the Finance Council at the end of July, urging regulators to adhere to the Dodd- Frank intent that the retained risk requirement not be implemented "in such a manner that results in the imposition of undue constraints on protective mechanisms that are legitimately used by securitizers to maintain their financial stability"

There are several risks inherent in any mortgage or security exposure that arise not from imprudent loan origination and underwriting practices, but from such factors as changes in interest rates, a sharp downturn in economic activity, or regional/geographic events such as a terrorist attack or weather-related disaster. Securitizers attempt to hedge against these market-oriented factors via interest-rate hedges that Treasury securities, relative spread hedges and macro-economic hedges that are correlated with changes in GDP or macro-economic conditions, Lancaster says.

2. Until these issues are settled,

i.e.: regulations are written, lenders, borrowers and regulators are likely to take the most conservative path towards lending. Writing and implementing these measures is going to take time, says Phil Rosen, head of Weil, Gotshal & Manges' real estate practice.

"Both borrowers and lenders will be stuck in a holding pattern while the regulations are being configured," he says. Lenders are certain to take the most conservative approach, even to the point of pulling out of real estate lending altogether, because of the looming regulatory apparatus. There are no less than four oversight bodies that will affect real estate lending under this new law, Rosen notes. Among other measures, the bill creates a Financial Stability Oversight Council, a Federal Insurance Office and a Consumer Financial Protection Bureau. Lancaster also made this point during his testimony, noting that there are at least two separate agency rulemaking proposals pending: the Security & Exchange Commission's proposed changes to regulation AB and the FDIC's proposed Safe Harbor rule, which would impose their own separate risk-retention frameworks on various segments of the securitization markets.

"We urge that any such rulemaking be done in the context of the joint risk-retention rulemaking framework Congress has established in Section 941 of Dodd-Frank, rather than unilaterally by individual agencies," he says. "The hazards of inconsistent and uncoordinated policies have been emphasized by many policymakers in the recent past."

3. Then banks have to figure out how other regulations will affect their operations. In mid-August the Financial Accounting Standards Board and the International Accounting Standards Board put forth a draft exposure on new methodologies for lease accounting.

A mammoth undertaking in its own right, the new measure will impact a $518-billion equipment finance sector and also touches upon banks' own balance sheets. Simply put, many of these institutions lease their branch operations.

The heart of the proposal now requires companies to keep all lease obligations on the balance sheet. All rent obligations, in other words, will be capitalized as a form of debt financing. Also, companies will no longer be able to recognize rent expense. Instead, it will be an amortization of an asset they have. Retailers can expect to take a hit from these new regulations because of their many locations, says Mindy Berman, Jones Lang LaSalle's managing director Board put forth a draft exposure on new methodologies for lease accounting.

The heart of the proposal now requires companies to keep all lease obligations on the balance sheet. All rent obligations, in other words, will be capitalized as a form of debt financing. Also, companies will no longer be able to recognize rent expense. Instead, it will be an amortization of an asset they have. Retailers can expect to take a hit from these new regulations because of their many locations, says Mindy Berman, Jones Lang LaSalle's managing director of corporate capital markets. It's a reality that also applies to banks.

4. It won't hurt to step up the lobbying right now for any changes or clarifications. Tom O'Grady, CEO of Pro Teck Valuation Services, for example, calls for clarification of appraisal management company registration fees and the definition of "customary and reasonable" fees paid to appraisers. The Dodd- Frank bill includes a yearly $25-per-appraiser-per-AMC registration fee that may be adjusted to a maximum of $50 per appraiser per year. Considering that there are approximately 40,000 appraisers on at least one AMC panel, compliance costs are likely to be in excess of$10 million. 5. Given all this, double down on your relationship with lenders. No doubt borrowers have cultivated their relationships with lenders during the crisis, says Gilles Gade, chairman of the board and CFO of Cross River Bank in Teaneck, NJ. But now is not the time to relax these efforts. Perform due diligence on your bank at regular intervals to make sure it is not headed for FDIC disposition. Don't shop around for the best rate, but grab the first one you can and line up multiple lenders to spread your risk. These are some commonsense strategies that all borrowers should be practicing now, Gade concludes.

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Five Tips for Surviving Dodd- Frank Reform

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