09 June 2004

Survey: Lack of Terror Coverage Would Hurt Commercial Mortgage Market

Survey: Lack of Terror Coverage Would Hurt Commercial Mortgage Market:


A new survey indicates that only 20 percent of commercial real estate portfolios would retain terrorism coverage if the requirement that insurers make it available is lifted, down from 83.5 percent.

The survey by mortgage bankers suggests that if the 'make-availavble' provision is removed, current terror endorsements will be cancelled by insurers and more than $400 billion in commercial loans could be exposed as a result.

The Mortgage Bankers Association (MBA) conducted its survey to determine the prevalence of terrorism risk insurance coverage and the impact the removal of the 'make-available' provision of the Terrorism Risk Insurance Act (TRIA) would have on commercial/multifamily real estate finance. Congress is currently considering renewal of TRIA.

Of the $656 billion commercial/multifamily debt reviewed in the MBA study, $616 billion, or 93.9 percent, is required to have terrorism insurance by the mortgage investor and/or servicer. A full $548 billion, or 83.5 percent of the outstanding balance of the commercial/multifamily debt reviewed, had terrorism insurance in place, according to the survey.

Insurance specialists at every loan servicer involved in the study said they expect that if the 'make-available' provision of TRIA is not extended, terrorism endorsements that are currently in place will be cancelled or excluded. Without the 'make-available' extension, they estimate by the spring of 2005 only 20 percent, or $132 billion, of their collective portfolios would have terrorism risk insurance coverage in place. This represents a reduction of 76 percent-- or $416 billion-- in the balance of loans that would be covered for losses due to terrorism.

The implications of such reductions would increase costs and reduce availability of credit, a reduction on the yield of existing loans and reductions in market liquidity, according to MBA officials."

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