Under current law, issuers of securities that are backed by a pool of financial assets must retain an economic interest in the assets underlying the securities that they issue, a feature known as risk retention. H.R. 4620 would exempt from that requirement a class of securities related to commercial real estate if the securitized mortgage is backed by a loan, or group of loans, on commercial properties under common ownership or control. (Such securities are known as the Single Asset Single Borrower security class.) H.R. 4620 also would exempt some qualified commercial real estate loans from the risk-retention requirement. Finally, H.R. 4620 would change the requirements regarding who may purchase residual risk from an issuer and how it is retained.
The bill would direct the federal banking agencies—the Federal Reserve, Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC)—and the Securities and Exchange Commission (SEC) to issue the standards required to qualify for the exemption and those agencies would need to revise current regulations concerning exemptions to risk-retention requirements.
Based on information from those four agencies, CBO estimates that the costs of revising the regulations would not be significant. The SEC is authorized to collect fees sufficient to offset its annual appropriation; therefore, CBO estimates that the net effect on discretionary spending would be negligible, assuming appropriations actions consistent with that authority.
Costs incurred by the FDIC and the OCC are recorded in the budget as increases in direct spending. Those two agencies are authorized to collect premiums and fees from insured depository institutions to cover administrative expenses. CBO expects that they would do so to recover any costs associated with amending current regulations under the bill. Costs to the Federal Reserve System are reflected on the federal budget as a reduction in remittances to the Treasury (which are recorded in the budget as revenues). Because enacting H.R. 4620 would affect direct spending and revenues, pay-as-you-go procedures apply. However, CBO estimates that the net effects would be insignificant for each year. CBO estimates that enacting H.R. 4620 would not increase net direct spending or on-budget deficits in any of the four consecutive 10-year periods beginning in 2027.
H.R. 4620 contains no intergovernmental mandates as defined in the Unfunded Mandates Reform Act (UMRA) and would not affect the budgets of state, local, or tribal governments.
If the SEC, FDIC, or OCC increase fees to offset the costs of implementing the bill, H.R 4620 would increase the cost of an existing mandate on private entities required to pay those fees. Based on information from the affected agencies, CBO estimates that the incremental cost of the mandate, if imposed, would be minimal and would fall well below the annual threshold for private-sector mandates established in UMRA ($154 million in 2016, adjusted annually for inflation).
