Industry News

Washington, D.C.(July 15, 2002) - The lack of comprehensive and affordable terrorism insurance for commercial properties has killed an estimated $3.7 billion in deals so far this year, and has delayed or changed the pricing on another $4.5 billion, according to the Mortgage Bankers Association of America (MBA).

In a survey conducted during June, MBA asked its commercial members to report whether the lack of terrorism insurance had impacted their business and to what extent. Forty-four percent reported that the lack of terrorism insurance had greatly affected their ability to make loans on commercial properties, while 40 percent reported that the lack of terrorism insurance had affected their business somewhat. Only 16 percent reported they had experienced no effect.

The 25 firms responding included some of the largest commercial real estate finance firms in the country. Last year MBA commercial membership reported originating $73.8 billion in commercial and multifamily property loans. Lending on commercial properties has been much slower in the first half of this year, due in part to the economy, but also due to the inability of the property owners to obtain sufficient terrorism insurance to protect the interests of investors in these loans.

"We have heard anecdotally about the problems on specific properties, but the magnitude of these numbers astounded me," said Jim Murphy, chairman of the MBA. "We are looking at billions of dollars in commercial financing that has been killed in the first half of the year because thus far Congress has been unable to reach agreement on a bill. The delay has been costly, and those costs will continue to go up the longer the delay."

MBA believes the final resolution should include the following provisions:

• Establishment of a federal government reinsurance backstop, with initial loss limitations for insurers. Initial losses exceeding those covered by insurance companies would be paid by a federal government reinsurance program.
• A cap on total losses to the private sector at a negotiated amount. Amounts in excess of the cap should be approved by Congress to protect the potential unlimited liability of taxpayers.
• The program must include a provision for the review and evaluation of the need for future government intervention. Any resolution that is adopted should provide for the continuation of the program in the event that the private sector has not resumed writing policies that include necessary coverage and, secondly, that there are a sufficient number of insurers that have returned to the market to resume competitive pricing.

Source: Mortgage Bankers Association