MBA Urges Long-Term Extension of TRIA
Although the Terrorism Risk Insurance Act–which provides a valuable federal backstop to insurance claims involving terrorism acts–is not set to expire until December 2020, the Senate Banking Committee is bringing up its reauthorization well ahead of time, an action the Mortgage Bankers Association welcomes.
Last week, the Banking Committee held a hearing, Reauthorization of the Terrorism Risk Insurance Program. Committee Chairman Mike Crapo, R-Idaho, said he wants to explore “whether there are additional balanced reforms to improve the Program and reduce taxpayer exposure without having a material negative effect on the cost and take-up rates for terrorism coverage.”
The Committee’s Ranking Member, Sen. Sherrod Brown, D-Ohio, said TRIA was “emblematic of our ability to use government to make the economy work better for everybody, especially during the most difficult of times.””The Terrorism Risk Insurance Program is critical to keeping our economy healthy. TRIA isn’t just a program that helps in the event of a terrorist attack,” Brown said. “Many businesses rely on this insurance in order to get access to credit, even in healthy economic times. Without government assistance, the insurance market would be unable to provide affordable insurance to these businesses, including small businesses, across the country.”
Following the hearing, MBA sent a letter of support to Crapo and Brown and urged the Committee to push a long-term reauthorization of TRIA.
“The importance of the Terrorism Risk Insurance Act of 2002 and subsequent reauthorizations to the American economy is directly relevant to MBA’s membership,” said MBA Senior Vice President of Legislative and Political Affairs Bill Killmer. “A long-term extension of TRIA is vital to the health of the commercial and multifamily real estate finance sector and the nation as a whole.”
The letter noted with $3.4 trillion in total mortgage debt outstanding, the commercial/multifamily real estate finance sector is a large and integral part of the national economy. “Over the past several years, commercial mortgage loans have performed extremely well,” MBA said. “The absence of available and affordable terrorism risk insurance, however, would negatively impact the commercial real estate finance sector and would ripple through the economy as buildings became more difficult and costly to finance and purchase.”
MBA said the need for terrorism insurance was “amply demonstrated” when it became either unavailable or unaffordable, noting a look back to the 14-month period before TRIA was signed into law in November 2002 provides important insight for what the future would hold should TRIA be allowed to sunset on December 31, 2020.
“In the aftermath of the September 11, 2001 terrorist attacks, terrorism insurance markets seized; a 2002 survey found $15.5 billion of real estate projects in 17 states were stalled or cancelled because of a continuing scarcity of terrorism insurance,” MBA said. “The impact on the 9/11 attacks also extended into existing commercial mortgages when $4.5 billion in commercial mortgage-backed securities were downgraded. Clearly, the lack of terrorism insurance coverage impacted both new construction and the commercial mortgage market. While there have been advances in terrorism risk modeling in recent years, the private insurance market cannot solely address this type of catastrophic risk. As a result, the failure to renew TRIA would have a tremendously negative impact on the availability of terrorism risk insurance.”
MBA said the uninterrupted continuation of TRIA is critical. The private sector still cannot supply adequate terrorism coverage without a federal backstop,” the letter said. “A long-term solution for terrorism insurance coverage is therefore a crucial issue for MBA’s members, especially servicers whose functions include receipt of insurance and mortgage payments, customer service, escrow administration, investor accounting, collections and foreclosures, as well as ensuring that properties have necessary insurance coverage in place. MBA’s members hold the single largest share of real estate debt outstanding in all markets and bear the lion’s share of the financial risk associated with property damage or destruction.”
