(1) The CRE loan must be secured by the
following:
(i) An enforceable first lien, documented
and recorded appropriately pursuant to applicable law, on the commercial
real estate and improvements;
(ii) (A) An assignment of:
(1) Leases and rents and other occupancy
agreements related to the commercial real estate or improvements or
the operation thereof for which the borrower or an operating affiliate
is a lessor or similar party and all payments under such leases and
occupancy agreements; and
(2) All franchise, license and concession agreements related
to the commercial real estate or improvements or the operation thereof
for which the borrower or an operating affiliate is a lessor, licensor,
concession granter or similar party and all payments under such other
agreements, whether the assignments described in this paragraph (a)(1)(ii)(A)(2) are absolute or are stated to be made to the extent permitted
by the agreements governing the applicable franchise, license or concession
agreements;
(B) An assignment of all other payments due
to the borrower or due to any operating affiliate in connection with
the operation of the property described in paragraph (a)(1)(i) of
this section; and
(C) The
right to enforce the agreements described in paragraph (a)(1)(ii)(A)
of this section and the agreements under which payments under paragraph
(a)(1)(ii)(B) of this section are due against, and collect amounts
due from, each lessee, occupant or other obligor whose payments were
assigned pursuant to paragraphs (a)(1)(ii)(A) or (B) of this section
upon a breach by the borrower of any of the terms of, or the occurrence
of any other event of default (however denominated) under, the loan
documents relating to such CRE loan; and
(iii) A security interest:
(A) In all interests of the borrower and any applicable operating
affiliate in all tangible and intangible personal property of any
kind, in or used in the operation of or in connection with, pertaining
to, arising from, or constituting, any of the collateral described
in paragraphs (a)(1)(i) or (ii) of this section; and
(B) In the form of a perfected security interest
if the security interest in such property can be perfected by the
filing of a financing statement, fixture filing, or similar document
pursuant to the law governing the perfection of such security interest;
(2) Prior to origination of the CRE loan, the originator:
(i) Verified
and documented the current financial condition of the borrower and
each operating affiliate;
(ii) Obtained a written appraisal of
the real property securing the loan that:
(A) Had an effective date
not more than six months prior to the origination date of the loan
by a competent and appropriately State-certified or State-licensed
appraiser;
(B) Conforms
to generally accepted appraisal standards as evidenced by the USPAP
and the appraisal requirements
1 of the
Federal banking agencies; and
(C) Provides an “as is” opinion of the market value of the real property,
which includes an income approach;
2(iii) Qualified the borrower for the
CRE loan based on a monthly payment amount derived from level monthly
payments consisting of both principal and interest (at the fully-indexed
rate) over the term of the loan, not exceeding 25 years, or 30 years
for a qualifying multi-family property;
(iv) Conducted an environmental risk
assessment to gain environmental information about the property securing
the loan and took appropriate steps to mitigate any environmental
liability determined to exist based on this assessment;
(v) Conducted an analysis
of the borrower’s ability to service its overall debt obligations
during the next two years, based on reasonable projections (including
operating income projections for the property);
(vi) (A) Determined
that based on the two years’ actual performance immediately preceding
the origination of the loan, the borrower would have had:
(1) A DSC ratio of 1.5 or greater,
if the loan is a qualifying leased CRE loan, net of any income derived
from a tenant(s) who is not a qualified tenant(s);
(2) A DSC ratio of 1.25 or greater,
if the loan is a qualifying multi-family property loan; or
(3) A DSC ratio of 1.7
or greater, if the loan is any other type of CRE loan;
(B) If the borrower did not
own the property for any part of the last two years prior to origination,
the calculation of the DSC ratio, for purposes of paragraph (a)(2)(vi)(A)
of this section, shall include the property’s operating income for
any portion of the two-year period during which the borrower did not
own the property;
(vii) Determined that, based on two
years of projections, which include the new debt obligation, following
the origination date of the loan, the borrower will have:
(A) A DSC ratio
of 1.5 or greater, if the loan is a qualifying leased CRE loan, net
of any income derived from a tenant(s) who is not a qualified tenant(s);
(B) A DSC ratio of 1.25 or
greater, if the loan is a qualifying multi-family property loan; or
(C) A DSC ratio of 1.7 or
greater, if the loan is any other type of CRE loan.
(3) The loan
documentation for the CRE loan includes covenants that:
(i) Require
the borrower to provide the borrower’s financial statements and supporting
schedules to the servicer on an ongoing basis, but not less frequently
than quarterly, including information on existing, maturing and new
leasing or rent-roll activity for the property securing the loan,
as appropriate; and
(ii) Impose prohibitions on:
(A) The creation or existence
of any other security interest with respect to the collateral for
the CRE loan described in paragraphs (a)(1)(i) and (a)(1)(ii)(A) of
this section, except as provided in paragraph (a)(4) of this section;
(B) The transfer of any collateral
for the CRE loan described in paragraph (a)(1)(i) or (a)(1)(ii)(A)
of this section or of any other collateral consisting of fixtures,
furniture, furnishings, machinery or equipment other than any such
fixture, furniture, furnishings, machinery or equipment that is obsolete
or surplus; and
(C) Any
change to the name, location or organizational structure of any borrower,
operating affiliate or other pledgor unless such borrower, operating
affiliate or other pledgor shall have given the holder of the loan
at least 30 days advance notice and, pursuant to applicable law governing
perfection and priority, the holder of the loan is able to take all
steps necessary to continue its perfection and priority during such
30-day period.
(iii) Require each borrower and each
operating affiliate to:
(A) Maintain insurance that protects against
loss on collateral for the CRE loan described in paragraph (a)(1)(i)
of this section for an amount no less than the replacement cost of
the property improvements, and names the originator or any
subsequent holder of the loan as an additional insured or lender loss
payee;
(B) Pay taxes, charges,
fees, and claims, where non-payment might give rise to a lien on collateral
for the CRE loan described in paragraphs (a)(1)(i) and (ii) of this
section;
(C) Take any
action required to:
(1) Protect the security interest and the enforceability and
priority thereof in the collateral described in paragraphs (a)(1)(i)
and (a)(1)(ii)(A) of this section and defend such collateral against
claims adverse to the originator’s or any subsequent holder’s interest;
and
(2) Perfect
the security interest of the originator or any subsequent holder of
the loan in any other collateral for the CRE loan to the extent that
such security interest is required by this section to be perfected;
(D) Permit
the originator or any subsequent holder of the loan, and the servicer,
to inspect any collateral for the CRE loan and the books and records
of the borrower or other party relating to any collateral for the
CRE loan;
(E) Maintain
the physical condition of collateral for the CRE loan described in
paragraph (a)(1)(i) of this section;
(F) Comply with all environmental, zoning,
building code, licensing and other laws, regulations, agreements,
covenants, use restrictions, and proffers applicable to collateral
for the CRE loan described in paragraph (a)(1)(i) of this section;
(G) Comply with leases,
franchise agreements, condominium declarations, and other documents
and agreements relating to the operation of collateral for the CRE
loan described in paragraph (a)(1)(i) of this section, and to not
modify any material terms and conditions of such agreements over the
term of the loan without the consent of the originator or any subsequent
holder of the loan, or the servicer; and
(H) Not materially alter collateral for the
CRE loan described in paragraph (a)(1)(i) of this section without
the consent of the originator or any subsequent holder of the loan,
or the servicer.
(4) The loan documentation for the CRE
loan prohibits the borrower and each operating affiliate from obtaining
a loan secured by a junior lien on collateral for the CRE loan described
in paragraph (a)(1)(i) or (a)(1)(ii)(A) of this section, unless:
(i) The sum of the principal amount of such junior lien loan, plus
the principal amount of all other loans secured by collateral described
in paragraph (a)(1)(i) or (a)(1)(ii)(A) of this section, does not
exceed the applicable CLTV ratio in paragraph (a)(5) of this section,
based on the appraisal at origination of such junior lien loan; or
(ii) Such loan is a
purchase money obligation that financed the acquisition of machinery
or equipment and the borrower or operating affiliate (as applicable)
pledges such machinery and equipment as additional collateral for
the CRE loan.
(5) At origination, the applicable loan-to-value ratios for the loan
are:
(i) LTV less than or equal to 65 percent
and CLTV less than or equal to 70 percent; or
(ii) LTV less than or equal to 60 percent
and CLTV less than or equal to 65 percent, if an appraisal used to
meet the requirements set forth in paragraph (a)(2)(ii) of this section
used a direct capitalization rate, and that rate is less than or equal
to the sum of:
(A) The 10-year swap rate, as reported in
the Federal Reserve’s H.15 Report (or any successor report) as of
the date concurrent with the effective date of such appraisal; and
(B) 300 basis points.
(iii)
If the appraisal required under paragraph (a)(2)(ii) of this section
included a direct capitalization method using an overall capitalization
rate, that rate must be disclosed to potential investors in the securitization.
(6) All loan
payments required to be made under the loan agreement are:
(i) Based
on level monthly payments of principal and interest (at the fully
indexed rate) to fully amortize the debt over a term that does not
exceed 25 years, or 30 years for a qualifying multifamily loan; and
(ii) To be made no
less frequently than monthly over a term of at least ten years.
(7) Under
the terms of the loan agreement:
(i) Any maturity of the
note occurs no earlier than ten years following the date of origination;
(ii) The borrower
is not permitted to defer repayment of principal or payment of interest;
and
(iii) The interest
rate on the loan is:
(A) A fixed interest rate;
(B) An adjustable interest rate and the borrower,
prior to or concurrently with origination of the CRE loan, obtained
a derivative that effectively results in a fixed interest rate; or
(C) An adjustable interest
rate and the borrower, prior to or concurrently with origination of
the CRE loan, obtained a derivative that established a cap on the
interest rate for the term of the loan, and the loan meets the underwriting
criteria in paragraphs (a)(2)(vi) and (vii) of this section using
the maximum interest rate allowable under the interest rate cap.
(8) The originator does not establish an interest reserve at origination
to fund all or part of a payment on the loan.
(9) At the cut-off date or similar date
for establishing the composition of the securitized assets collateralizing
the asset-backed securities issued pursuant to the securitization
transaction, all payments due on the loan are contractually current.
(10) (i) The depositor of the asset-backed
security certifies that it has evaluated the effectiveness of its
internal supervisory controls with respect to the process for ensuring
that all qualifying CRE loans that collateralize the asset-backed
security and that reduce the sponsor’s risk retention requirement
under section 244.15 meet all of the requirements set forth in paragraphs
(a)(1) through (9) of this section and has concluded that its internal
supervisory controls are effective;
(ii) The evaluation of the effectiveness
of the depositor’s internal supervisory controls referenced in paragraph
(a)(10)(i) of this section shall be performed, for each issuance of
an asset-backed security, as of a date within 60 days of the cut-off
date or similar date for establishing the composition of the asset
pool collateralizing such asset-backed security;
(iii) The sponsor provides, or causes
to be provided, a copy of the certification described in paragraph
(a)(10)(i) of this section to potential investors a reasonable period
of time prior to the sale of asset-backed securities in the issuing
entity, and, upon request, to its appropriate Federal banking agency,
if any; and
(11) Within two weeks of the closing of the CRE loan by its originator
or, if sooner, prior to the transfer of such CRE loan to the issuing
entity, the originator shall have obtained a UCC lien search from
the jurisdiction of organization of the borrower and each operating
affiliate, that does not report, as of the time that the security
interest of the originator in the property described in paragraph
(a)(1)(iii) of this section was perfected, other higher priority liens
of record on any property described in paragraph (a)(1)(iii) of this
section, other than purchase money security interests.
(1) The failure of the loan to meet any
of the requirements set forth in paragraphs (a)(1) through (9) and
(a)(11) of this section is not material; or;
(2) No later than 90 days after the determination
that the loan does not meet one or more of the requirements of paragraphs
(a)(1) through (9) or (a)(11) of this section, the sponsor:
(i) Effectuates
cure, restoring conformity of the loan to the unmet requirements as
of the date of cure; or
(ii) Repurchases the loan(s) from the
issuing entity at a price at least equal to the remaining principal
balance and accrued interest on the loan(s) as of the date of repurchase.
(3) If the
sponsor cures or repurchases pursuant to paragraph (b)(2) of this
section, the sponsor must promptly notify, or cause to be notified,
the holders of the asset-backed securities issued in the securitization
transaction of any loan(s) included in such securitization transaction
that is required to be cured or repurchased by the sponsor pursuant
to paragraph (b)(2) of this section, including the principal amount
of such repurchased loan(s) and the cause for such cure or repurchase.
