TRIA Disruption Feared.(Terrorism Risk Insurance Act )

Chicago -- If the Terrorism Risk Insurance Act is not extended this year, there could be a more profound impact than the impact felt immediately after 9/11, according to Daniel Rubock, a vice president/senior credit officer with Moody's Investors Service.

Speaking at a panel session on the role of the rating agency at the Mortgage Bankers Association's Asset Administration & Technology Conference here, Mr. Rubock noted that about 50%-75% of properties have conditional terrorism coverage and so a large chunk of the coverage could disappear, creating a market disruption.

Moody's is likely to treat any impacted commercial mortgage-backed securities bonds on a one-by-one basis depending on the individual properties backing them.

Some loan documents are addressing the possibility that the terrorism insurance backstop might not be available, he said.

If they want borrowers to get standalone coverage, servicers could cite previous court decisions favoring lenders, he noted. However, this doesn't address the capacity issues relating to the availability of the insurance.

The emergence of "pari passu" split notes - splitting a large loan into a number of different parts that could go into different CMBS pools - in large part came about as a way to deal with the terrorism insurance issue, according to Mr. Rubock.

Erin Stafford, a senior vice president with Dominion Bond Rating Service said that they are adopting a "cautious approach" taking into account the possibility the coverage may not be extended.