Rick Jones

Subscribe to Rick Jones's Posts

On January 20th, the SEC finalized its first batch of many rules to come under Dodd-Frank, requiring issuers to perform reviews of the assets underlying their ABS securities and requiring them to disclose fulfilled and unfulfilled repurchase requests for alleged breaches of representations and warranties.  These have effective dates beginning with 2012 issuance so, to a certain extent, we can kick the anxiety can down the road for a while.  Nonetheless, this is a pretty clear window into what may be a bleak regulatory future.  And that’s important now.  More on this later.

Rule 193 (release here (pdf)) requires an issuer to know something about the assets it’s securitizing.  The issuer is supposed to do diligence to understand the assets it securitizes and tell the investor about the nature of its inquiry.  Curiously, and I’m not complaining here, Rule 193 does not purport to define what disclosures need be made, just that there ought to be “robust" and "transparent” diligence behind them. Its inquiry must be “designed and effected to provide reasonable assurances” that the disclosures about the assets are correct.

Hardly shocking.  Call me silly, but that seems to be what we do in structured finance.  I guess more information about exactly what the issuer did to understand the assets it securitizes could be useful, particularly in asset classes in which the asset level data is sketchy and aggregate.  It’s just silly in CMBS when we already deliver vast quantities of granular data in every deal.Continue Reading The FinReg Sheriff Arrives in Town: Do You Feel Safer?

While perhaps akin to stories of sixteen foot gators in the New York sewer system, I have heard that there is a physiological basis for suppressing the more painful memories of childbirth which is the species’ way of ensuring that couples have more than one child. Perhaps a similar thing is affecting investors and market participants to allow animal spirits to be rekindled this January.

Oh, I think it’s fair to say that there were precious few animal spirits in January ’08 and ’09 and we were all a bit fluttery at the beginning of 2010, but I think we’ve put the worst memories of the last 3 years’ unpleasantness behind us and appear intent on enjoying the delightful frisson of booming times once again.
 Continue Reading Animal Spirits and Limits of Memory

Leading with the good news, the commercial mortgage finance market is back and growing at a brisk pace.  From a few standalones in the fourth quarter of 2009, we’ve gotten to a remarkable place.  Even during the first half of 2010, while lenders were hesitantly starting to lend, precious few lenders actually had real balance sheet availability for securitization.  That changed.  We’re back!  

Almost as soon as these markets began to function again, complaints about the quality of the loans began to bubble up.  OK, LTVs remain modest and, broadly, we’re not  underwriting pro forma income, but structural rigor and simplicity did not long endure.  Give me a break.  The joke has always been that our business had a seven year cycle and five year memories so that once in every cycle we’d recapitulate the errors of the last.  But five months?Continue Reading Seven Year Cycles and Five Month Memories

 With Thanksgiving upon us and the holiday season in full swing, we here at CrunchedCredit.com would like to present our “Golden Turkeys”, noting certain special contributions to the ongoing resurrection of the Commercial Real Estate Finance industry.

The Golden Turkey for the Best Self-Inflicted Wound: FASB

Hands down, this goes to the Financial Accounting Standards Board. We don’t know whether to give top honors to FAS 166 and 167 dealing with the transfer of financial assets or the new Fair Value Accounting Rules. But in any event, in a series of changes which certainly must have made more sense to academic accounting communities and to the financial markets and investors for which these little regulatory gems were designed, for reasons which remain curious even now, they’ve imported enormous financial volatility and burdened the balance sheets of financial institutions with assets they don’t own and liabilities for which they have no contractual liability in the middle of the greatest financial correction in modern memory. At least we changed the rules of the game, we drop a giant pro-cyclical engine into the balance sheet, stir in a little FinReg, and, Viola! — chaos. We could have hoped someone with regulatory gravitas could have stood up and said, "What are you thinkin’?" And now for a second heaping of goodness, FASB is considering expanding Fair Value to all financial assets, which will produce even more volatility onto the balance sheets of financial institutions. Oh, and have we mentioned Lease Accounting? If FASB has their way, all leases will be treated as capital leases. we can’t even begin to tell you how bad that is. FASB, the winner in this category, hands down.

The Golden Turkey Award for Best Regulatory Knifefight: FDIC

This award goes to the FDIC. This late, lamented Congress began spinning the tale that the absence of skin in the game caused the capital meltdown over the past three years, and, in large measure, through sheer undisputed resolution, it has become received wisdom. (There must be a Golden Turkey for that itself, isn’t there?) So the SEC begins a regulatory initiative to impose skin in the game requirements for use of a shelf in a publicly registered transaction. Good enough, and then the Congressional locomotive comes through and skin in the game becomes a part of Dodd-Frank. Under Dodd-Frank, all the relevant banking regulatory agencies and the SEC are directed to engage in joint rulemaking on skin in the game. In the middle of all this, the FDIC publishes its new securitization Safe Harbor, which contains a completely freestanding and independent skin in the game provision. Oh, sure, the Reg which is in final form is applicable as of January 1, 2011, has an auto-conform provision that the Dodd-Frank skin in the game provisions won’t be law for two years, so we have, irrespective of the FDIC imposing its own set of conflicts rules on a certain sector of the securitization market, face a specific direction to engage in joint rulemaking. What the banking regulatory community thinks about this one can make the other members of the bank regulatory community and the Federal Reserve think about this one can only imagine. We suspect the SEC might be a bit pouty too.Continue Reading Commercial Real Estate 2010 Recap: And the Golden Turkey Award Goes To…

CREFC and MBA. MBA and CREFC. Tied at the hip. Danny Kaye and Bing Crosby? (For those of an age or inclination to have watched White Christmas recently). After a period of open and somewhat notorious and perhaps a little embarrassing competition, these two trade organizations have to settle down and get along for the benefit of the industry which they both serve. The good news is that the early indicators are positive.Continue Reading Can’t We Just Get Along

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

I am on a Halloween kick right now – it’s the elections. I hear Zombies are popular this year.  Zombies indeed.  Do you ever think this could be a deeply sophisticated and sly commentary on our GSEs?  How droll.  They are scary.  How about that for a segue.

The private securitization market for residential mortgages is still dead (like Generalissimo Franco) and the GSEs, attached to a fire hose of taxpayer money, continue to fuel 90% of the United States housing market.  But they are insolvent. What apparently worked so brilliantly for twenty-five years is breathtakingly broken.  Call me silly, but I don’t think we’ve got a sustainable model here.  The good news is that no one else seems to think we have a sustainable model either.  There was a symposium at the Federal Reserve last week on the future of housing finance.  I don’t think a lot of progress was made.  I was passingly concerned to see that almost all of the talking heads were academics.  That demographic may be really good at some things; my guess is not so much at rebirthing a functional housing finance market. It struck me as more can kicking.  When in doubt, talk.  Wonk-filled symposiums give birth to papers, not markets.Continue Reading GSEs: The Night of the Living Dead

I’m shocked, shocked! Our elected panjandrums have discovered and the media has slovenly reported with considerable glee (if it bleeds, it leads) that, in processing millions of residential foreclosures, Robosigner signed off on files prepared for foreclosure by nameless employees (or machines). Anything which 47Attorneys General think is a good idea in the middle of a political season to beat most political seasons is, by definition, suspect. I hear fraud tossed around, I’m starting to hear criminal investigation tossed around. And they’re serious. I feel for the poor bastards deep in the bowels of those lenders, just doing their jobs, who may now become “targets.”

Continue Reading Robosigners Destroy the Republic! Really?

Why not be optimistic about 2011? Admittedly, those who know me say that if I’m deeply pessimistic it’s time to buy guns, gold and canned food and dig a hole. But why not be optimistic about next year? Let’s tout it up.Continue Reading Why Not?