Cut to Terrorism Risk Insurance Will Exacerbate Credit Crunch in Commercial Real Estate

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(News Source: Mortgage Bankers Association)

(WASHINGTON, D.C.) -- The Mortgage Bankers Association (MBA) today called on Congress to support the Terrorism Risk Insurance Act (TRIA).  The call comes on the heels of the budget released by the Obama Administration on May 7, 2009 that proposes to reduce funding for TRIA by $644 million over the next decade.

"Winding down TRIA would only exacerbate the current lack of liquidity that has frozen the commercial real estate market," said Michael D. Berman, CMB, MBA's Vice Chairman and President and CEO of CWCapital of Needham, MA.   "Reducing the federal backstop that protects commercial real estate sends the wrong message and will work counter to ongoing efforts to improve liquidity in the commercial real estate market that the administration is making through TALF."

The Obama administration's fiscal year (FY) 2010 budget proposes to reduce the federal co-share for property and casualty insurance payments for acts of terrorism beginning in FY 2011 in the hope that it will encourage private market participants to increase their role mitigating terrorism risk.  In 2011, and then again in 2013, the proposal would increase the insurer deductible and co-payment as well as the event trigger amount for Federal payments.

"The TRIA program provides an important backstop that allows terrorism insurance to be both available and affordable," continued Berman.  "Without it, terrorism insurance, if available at all, would be extremely expensive. Because property owners are required by lenders to have terrorism coverage in place, we could see a return to the market we saw in the aftermath of 9/11 when the lack of available terrorism insurance caused billions of dollars worth of commercial real estate constructions projects to be delayed or canceled and created a large obstacle for refinancing commercial loans."

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