February 2012

That great whooshing sound you heard a few weeks back may have been the air being sucked out of the room for thousands of warm bodies that penned recourse guaranties on (now) underwater loans during the market’s run-up. The cause: two recent cases coming out of Michigan (Wells Fargo Bank, NA v. Cherryland Mall and  51382 Gratiot Avenue Holdings v. Chesterfield Dev. Co.) sticking recourse guarantors with deficiency judgments on heretofore non-recourse loans based on the interplay of two fundamental tenets of CMBS lending – “bad boy” carve-outs and single purpose entity covenants.

Non-recourse lending is a lynchpin of American real estate finance. The lender is limited in the exercise of its remedies upon default to the collateral – for all intents and purposes, the Borrower gets a check at origination and a put at maturity should things go south. But there are limits – carve outs for fraud, selling the property, stealing rents, filing bankruptcy and other naughtiness will give the lender the right to look to the guarantor to make good on the loan.
 Continue Reading Pay Me My Money Down: Recourse Guarantors Pick Up the Tab in Michigan

The ASF 2012 Conference held last month in Las Vegas was a success by any measure and attracted an impressive number of attendees (4,500).  Attendees were happy to escape New York and other chilly locales and attend some great panel discussions on securitization, regulatory developments and mortgage servicing (or, for some, at least read about those panels the next morning on their iPhones while waiting to tee off).  The owners of the Aria will definitely be able to make their mortgage payment this month with all of the money left behind by ASF attendees. 

My Dechert colleagues and I who attended the Conference cover almost all of the securitized asset classes.  As I described in my blog from the Conference, your particular view of the Conference depends largely on what asset class you focus on in your practice – autos and CLOs, for example, look very strong.  As someone who spent unimaginable amounts of hours of my pre-credit crisis life drafting RMBS deal documents, I yearn for the return of the public RMBS deals  – and not just because I miss spending my days (and most nights) trying to describe in “Plain English” the waterfall on a multi-group negative amortization deal.  I truly believe that we can’t have a meaningful recovery in the housing market without the return of private-label RMBS.  But regardless of what particular asset type you follow, there was undeniably a lot of buzz surrounding a couple of topics. Continue Reading Leaving Las Vegas: Further Thoughts on the ASF 2012 Conference

We’ve been writing a lot recently about the likelihood that European banks and, to a lesser extent, U.S. banks would be strongly incented to sell assets to improve capital ratios. We had a client briefing in New York on the Eurobank crisis a few weeks ago. We brought together our North American and European regulatory and transactional counsel to cover a wide range of issues from the sale of assets to rescue capital. We had a lively conversation on the panel and with the audience about asset sales. It was pretty clear to one and all that if assets are not disintermediated, bankers will be defenestrated. Given the choice, we are pretty sure the banks will sell assets.

De-risking of banks’ balance sheets might be less than terrific macroeconomic policy at a time when economic activity is weak and could be very bad if it touches off a powerful credit contraction and a descent into a continent full of zombie banks. That’s bad. But, always look on the bright side of life, in a Life of Brian sort of way. In the short to medium run, the velocity of transactional activity around financial assets will go up. Indeed, we have been very busy since mid-year buying, selling or financing pools of loans bereft of the love of the bank who made ‘em.Continue Reading Learning to Love Disintermediation