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Another item to add to the growing list of possible unintended consequences of financial reform in connection with ABS: Section 210(a)(11) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”)—Avoidable Transfers.

Here’s the who, what, where, when, why and how ABS are affected.

WHO? A “covered financial company” of which the FDIC becomes the liquidating receiver. Under the Reform Act, a “covered financial company” is a “financial company” as to which a “systemic risk determination” (such financial company is deemed to pose a significant risk to the financial stability of the U.S. upon its failure) has been made by the Secretary of the U.S. Treasury in consultation with the President. Entities most likely to be affected are non-bank “financial companies,” bank holding companies, and non-bank U.S. subsidiaries of either– if such subsidiary is in a financial business. An insured depository institution cannot be a “covered financial company.”
 Continue Reading Fa la la la la, la la, OLA

Somehow, particularly this year, the fact that election eve and All Hallow’s Eve arrive but three days apart seems so compellingly appropriate.  Both are scary and both involve an awful lot of people pretending to be something they’re not.  But elections are supposed to have consequences while Halloween does not.  So let’s test that.  Does this election matter for CRE finance?  Or, how many treats and tricks did this election cycle have to offer?

As I write, the election is in the history books.   A resounding Republican victory in the House, while the Ds held on to the Senate by a smidge.  We hear the term game changer tossed around a lot, but will this indeed be a game changer for CRE finance?Continue Reading Elections, Halloween and the Credit Market

On October 20th at the Charlotte City Club, Dechert partner David Harris spoke on an ASF Sunset Seminar panel titled “FDIC’s Final Securitization Safe Harbor – Understanding the New Rules.”  I won’t spend too much time on the background of the FDIC’s Old Safe Harbor Rule but will tell you that the Transitional Safe Harbor Rule continues to have a place even though we have a New Safe Harbor Rule (adopted on September 27, 2010), because the New Safe Harbor Rule extends the Transitional Safe Harbor Rule so that transfers of assets into securitizations made on or prior to December 31, 2010 are permanently grandfathered and not subject to the conditions of the New Safe Harbor Rule.  Following?
Continue Reading Securitizations: An Old Rule, a Transitional Rule and a New Rule (and we’re not talking Good, Better, Best)

Last week the FDIC approved its final Safe Harbor Rule regarding securitization. That something that sounds so good could be so bad leaves you thinking: can’t we catch a break in trying to repair this damaged economy? To set the stage a bit, the FDIC has a suite of powers, while acting as conservator or receiver of an insured depository institution (“IDI”), to affirm or repudiate contracts and claim or recover property of the IDI. When a failing IDI securitizes financial assets, these powers allow the FDIC to undo the transaction and re-acquire those assets. The possibility that a securitization would be undone by the FDIC is an existential problem for any proposed securitization. But never fear. So long as a transaction meets all the conditions for sale accounting under GAAP, the transaction is proof against the exercise of those powers. Even better, there is a Safe Harbor! Sounds simple, right?Continue Reading FDIC: Mining a Safe Harbor

I know I return to this theme a lot in this column, but the Unintended Consequences Watch needs to be manned day and night. Today let’s talk about 17g-5. This esoteric sounding SEC rule is intended to diminish the perceived failings of the rating agency culture which has been fingered as one of the principal causes of the “Late Unpleasantness”. The notion was that the rating agencies, hired by the issuers, were mired in conflicts of interest and there were few, if any, structural safeguards to protect investors from bad ratings.

17g-5 provides that rating agencies must require a party retaining the agency to rate an asset backed security (including CMBS) to establish and maintain a password-protected website for all other rating agencies. The website must contain all information provided to the rating agency in connection with the rating. This pertains whether information is provided in writing or orally and to information provided by the issuer or by anyone on behalf of the issuer. The information must be loaded into the website simultaneous with its delivery to the retained rating agency. This was purported to provide a structural counterpoint to the pressure for continuously lower levels by issuer procured ratings.

This has some superficial appeal. To the extent that investors were concerned about conflicts of interest, unsolicited ratings seems an antidote to these perceived concerns. Indeed, on first blush, it’s hard to see an argument that unsolicited ratings are bad.

But on first blush I thought the financial crisis that began about three years ago last month, would be over by Thanksgiving. The story of 17g-5 is yet another reminder that financial systems are much more complex than rule makers perceive them and wish them to be. Welcome back, yet again, to the wonderful world of unintended consequences.

In this case, what has flowed from the desire to do good by providing multiple opinions of value to the investors is a system which is likely to degrade the quality of information and analysis available to investors.Continue Reading Unintended Consequences Redux

It seems that I use most of my time in this space to rail against an unthoughtful regulatory architecture that will certainly surprise and may ultimately do unintended and substantial harm to our nascent and uncertain recovery. While, from where I sit, it’s still fair to say this market continues to show little real conviction that it’s safe to get back in the water (hardly an irrational mindset) there is, periodically, some good news. So let’s make time for a bit of good news. Ta-da: It was reported recently that average consumer credit card borrowings have dropped below $5,000 per person for the first time since 2002.

This is terrific news. Perhaps not the stuff of rational giddiness, but combine that with the fact that corporate earnings are up, private cash savings rates are at recent highs, the de-leveraging is going great guns (everywhere, that is, outside of our government), house prices seem to be stabilizing in most markets even if sales continue to lag, interest rates are at ridiculously low levels and the reality of the re-set of the valuations of both the commercial and residential property stock has been internalized. A bit of optimism is not wildly inappropriate.Continue Reading Vacation Induced Optimism?

Covered bond legislation is once again a hot topic on Capitol Hill. Representative Scott Garrett (R-NJ) co-sponsored the latest iteration of his proposed legislation (United States Covered Bond Act of 2010 or H.R. 5823 (pdf)) along with Representatives Kanjorski (D-NJ) and Bachus (R-AL). The House Financial Services Committee recently voted in favor of reporting H.R. 5823 to the full House of Representatives for consideration, which hopefully will be taken up for a vote this fall shortly after the August recess.Continue Reading Covered Bonds Anyone?

It’s August 6 as I write this, and the finance industry is taking a deep breath after hustling for weeks to get their comments delivered to the SEC on the SEC’s massive restructuring (pdf) of Reg AB and offering reform.  We here at Dechert had been very busy writing the CREFC comments (pdf) and I’m delighted to see that effort coming to a close (it only took 24 drafts to get to our submission).

To be clear, this is merely the opening act of what will be a protracted insect dance between business and government to settle on rules that deliver on the SEC’s goals of transparency and alignment between issuers and investors while not imperiling the restoration of a healthy CMBS market.  This process will consume the time of many of us for the indefinite future.Continue Reading And Now the Real Game Begins