Look who’s happy!
WASHINGTON-November 19, 2009-Commercial Mortgage Securities Association today applauds Reps. John Adler (D-NJ), John Campbell (R-CA), Dennis Moore (D-KS) and Gary Miller (R-CA) for working on an amendment offered by Reps. Walt Minnick (D-ID) and Melissa Bean (D-IL) to the House Financial Services Committee financial regulatory reform bill that passed the Committee unanimously and would support a recovery in the commercial mortgage-backed securities market and the overall commercial real estate sector.
The amendment reduces the maximum ‘retention’ (or ‘skin-in-the-game’) requirement from 10% to 5% and includes language that would customize retention provisions to reflect the unique nature of the CMBS market, which utilizes a third-party investor who purchases the first-loss position and re-underwrites all loans during the pre-issuance period. CMSA has urged policymakers to structure retention provisions carefully in order to maintain and strengthen the safeguards that exist in the CMBS market by explicitly recognizing the important role of third-party investors who purchase the first-loss position and perform due diligence.
This new requirement is part of the Financial Stability Improvement Act — and effectively compels CMBS originators to retain a percentage of the credit risk associated with the loans they originate. The thinking is that securitisers will be less willing to write risky loans if they have to share in a portion the resulting losses.
But some critics of the requirement said it would, in conjunction with new accounting standards designed to eliminate some off-blance sheet vehicles, hamper the already limping commercial real estate market. And on that point it looks like CMSA have won another smallish victory:
The retention issue — which has been a top priority for CMSA — is of particular concern in light of new accounting standards, FAS 166 and 167, which could result in significantly less credit availability. In this regard, the House Committee also approved another amendment — offered by Rep. Scott Garrett (R-NJ) and supported by CMSA — that would require the Federal Reserve and financial regulators to examine the combined impact of new “retention” requirements and accounting standards on credit availability, and to report to Congress with specific recommendations prior to any rulemaking on the retention.
Related links:
Retention of securitisation positions: The end-game approaches – Ashurst London
Let them eat equity traches – for real – FT Alphaville
Skin in the game – Lex