I just can’t schedule enough time in my day to worry about all the things that seem to demand to be worried about. As I write, this week the Dow closed 630+ down one day and bounced 600 points the next. Yikes.  Between that, the debt ceiling and downgrades, Dodd-Frank, the interminable drumbeat of hostility towards Wall Street and business coming out of the White House, the mess in Europe, the falling dollar, insanely low interest rates, high unemployment, the fact that somehow corporate America seems to still be earning bucket loads of money, and, in general the discomfiting disconnect between our still positive every day deal world and the angst, anxiety and drumbeat of awful news in the macro market, what should we think?  It makes my hair hurt.

But, drawing on my deep and boundless reserve of existential anxiety, I’ve now found a few free moments to worry about the SEC’s new re-proposal on shelf eligibility for asset-backed securities. This missive was released (pdf) on July 26, 2011, and comments are due by October 4, 2011. Continue Reading It Just Gets Better and Better: Reg AB Redux

The Chairman of the House Committee on Financial Services (“HFSC”) Spencer Bachus (R-AL) and the Chairman of the HFSC Subcommittee on Capital Markets and GSEs Scott Garrett (R-NJ) submitted a letter on August 2, 2011 to the joint regulators addressing the premium capture cash reserve account (“PCCRA”) as proposed in the risk retention NPR.  Under the proposed risk retention rules, if excess spread in a securitization is monetized, any premium received has to be put into a separate PCCRA that would absorb losses first.  So a securitizer who monetizes an IO or earns a premium on the sale of P&I bonds, has to put that money in a PCCRA to serve as a first loss reserve for any losses on the collateral– for the life of the transaction– on top of the 5% risk retention requirement. So, basically, securitizations would be done without profit.  Understandably, the PCCRA has been one of the sore spots of the risk retention NPR.  The Mortgage Bankers Association (“MBA”), among many others, extensively discussed the problems with the PCCRA in its July 11 letter to federal regulators outlining MBA’s views and recommendations from the commercial and multifamily mortgage finance perspective in response to the risk retention NPR.Continue Reading More About that Premium Capture Kerfuffle

Ah, baby is one. I remember when mine was — complete with an over-the-top celebration for an infant who had no idea what was going on and would remember nothing of it. The food, the drink, the fancy cake, the ridiculous crown… I chalk it up to a rite of passage for a parent to throw at least one of those unnecessary first birthday parties. On this, Dodd-Frank’s first birthday, I’m not so sure those who birthed it are donning hats, eating cake and sipping champagne in celebration.

On July 19, the Government Accountability Office (the “GAO”) published an 83 page report entitled “MORTGAGE REFORM Potential Impacts of Provisions in the Dodd-Frank Act on Homebuyers and the Mortgage Market.” The report addresses the potential impact on the mortgage market of qualified mortgage (“QM”) criteria, the credit risk retention requirement, provisions concerning homeownership counseling and regulation of high-cost loans. By examining mortgage loans made from 2001 through 2010 in CoreLogic, Inc.’s database, the GAO has drawn some practically meaningless conclusions about the mortgage market. For starters, the GAO acknowledges that the data used for its examination was not necessarily a representative sample. Furthermore, on several occasions throughout the report, the GAO hedges its analysis to the point of, well, uselessness.Continue Reading Dodd-Frank is One! And We Still Don’t Know What a Resi Mortgage is Going to Look Like

Dechert Partners Patrick Dolan, Thomas Vartanian and Robert Ledig recently reviewed the current status of and proposed amendments to Representative Garrett’s covered bond legislation in the latest Dechert On Point. As this bill continues to slog through the congressional halls (for now, the bill appears to have stalled in the Senate, as the Senate…

What the hell is going on here? I’ve got a business to run, and it’s really annoying that I can’t sort out whether we’re in the early stages of recovery or on the cusp of another train wreck. When Dad taught me to drive, he had to keep saying “Don’t look at where you are but where you’re going.” Good advice. Yet only as long as I look at the road right in front of me do I feel OK. If my eyes wander to the horizon, I get really itchy.

This recovery feels very brittle. Oh, sure, transactional activity is way up. If Dechert’s practice is the first derivative of the broader capital markets (and I think it is), then things have been getting progressively more robust for the better part of a year now. We’re growing, we’re hiring, deals are coming in at a goodly pace. Yet, everyone I know with the slightest capacity for reflection is touchy, to say the least.

So let’s do a S.W.O.T. analysis of where we sit.Continue Reading What in the Hell is Going on Here Anyway?: A SWOT Analysis of the Financial Recovery

A new kid showed up on the CMBS block in 2010: the operating trust advisor, sometimes also referred to as, among other things, the senior trust advisor (the “OTA”). During the great recession and credit interregnum, investors dreamt of an independent third party who would represent the interests of investment-grade investors to protect them from the conflicted and potentially nefarious behavior of special servicers who were considered by some to be in bed with the B-piece buyer and to facilitate an improved flow of information on a real-time basis. Someone who would somehow be there for bondholders when pools began to wobble. When the New York Fed was rooting around for a structure for TALF that would not only execute well but would also provide a learning opportunity for the market, they listened to the IG bondholders, and the OTA was born.

For the regulatory community and some elements of the investor community, it was love at first sight. But by late 2010, some thought that the OTA was going the way of the Edsel. A one-hit wonder. Then, in April 2011, the regulators embraced the OTA in their proposed risk retention rules. And now the OTA may be here to stay. Perhaps bowing to the inevitable, most recent 2011 CMBS conduit deals (and some single asset deals) have utilized some form of an OTA. Continue Reading The Operating Trust Advisor: Here Today, Here Tomorrow

Here in Boston, we’ve had a busy but productive week since the CREFC June Convention culminated –punctuated with more than a million hockey fans witnessing a parade of Duck Boats waddle through the Back Bay. The Convention itself saw a smaller (albeit similarly excitable) parade of lenders, borrowers, servicers and other industry participants descend on Manhattan for two days of networking, learning and discussion.

Continue Reading CREFC Convention Recap and Making Way For Duck Boats

Dechert LLP and Wells Fargo will be co-hosting the next CREFC After-Work Seminar on Tuesday, June 21 at the Omni Hotel in San Francisco. The topic of the seminar is "CMBS 2.0: A Securitization and Loan Level Perspective".  The program will explore what’s changed, what’s stayed the same and what CMBS 2.0 means…

Greetings. What ever happened to those REMIC rules regarding property releases that we blogged and wrote about in 2009 (pdf) and 2010 (pdf)? The REMIC rules were revised in September 2009 to add flexibility to facilitate certain types of servicing transactions. However, under the new rules, if a property release occurs, the loan had to be retested to determine whether it continued to be principally secured by real estate (e.g., secured by no more than 125% loan-to-real property value ratio).

Quite a price for a bit more flexibility! This caused enormous consternation as it was promulgated during a massive cyclical downturn in real estate values which resulted in many properties not being able to pass the new “principally secured” test if a release occurred. And many loans contemplated such a release. In a bold recognition of reality, something not entirely common in regulatory circles, the IRS issued Revenue Procedure 2010-30 (pdf) establishing a safe harbor for certain “grandfathered transactions” and “qualified paydown” transactions. Under the Rev Proc, a loan would not lose its status as a REMIC “qualified mortgage” even if the “new” loan-to-real estate value ratio was in excess of 125% (i.e., if the loan was less than 80% secured by real property) so long as the loan was “grandfathered,” meaning that it was closed on or before December 6, 2010 (and not amended after that date).Continue Reading REMIC Rules Revisited: Got Compliant Property Releases?