Dodd-Frank

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Your correspondent is fresh from the front-lines of the risk retention wars where great armies of lawyers, bankers and advisers are fixedly staring at each other, staring out of the redoubts of their respective defensive crouches in a complex, multidimensional chess game.  All are fervently hoping against hope that something or someone does something to create clarity and allow our business to pivot around this new set of rules so it can continue to thrive.  I think all of us in the finance world are justifiably proud of the fact that if we are given a set of rules, we’ll figure out how to conduct business.  But the uncertainty here is freezing everyone in place, a giant front court pick that we can’t seem to get around.  But one thing is certain and that is that Christmas Eve is coming and with it this Rule will become effective.  After having obsessed about the Risk Retention Rule for years now, we are broadly no closer to clarity about how one should play in the soon to be upon us risk retention world.
Continue Reading A Report From the Risk Retention Front-Lines

I’d like everyone to go out and buy a copy of Professor Paul Mahoney’s slender new book, Wasting a Crisis – Why Securities Regulation Fails.  Paul is a brilliant guy.  Until this spring, he was the dean of the University of Virginia School of Law where he is the David and Mary Harrison Distinguished Professor of Law and the Arnold H. Leon Professor of Law, teaching securities laws.  This is a great book and an important read.  Paul argues cogently that:
Continue Reading Why Regulation Fails

The Dodd-Frank Act was a cornucopia of opportunity for rule writers. To the regulatory community, this was almost a bottomless candy jar. And so our regulatory apparatchiki began to beaver away and produced, to date, something like 22,000 pages of rules which purport to moderate or prevent bad behavior by all those nasty institutions perceived to have some responsibility for the financial crisis of 2008. Curiously, at least, to me, Dodd-Frank included in among its bad boys, those institutions “significantly engaged in insurance activities.” Apparently, our Congressional grandees in the overheated environment of the Great Recession conflated insurance and banking. Hey, they are kind of like financial institutions, and they’re big, or at least some of them are, and are probably filing with nefarious types inclined to go off the reservation and therefore in need of “guidance” from the regulatory community.
Continue Reading Dodd-Frank Rulemaking Developments by the Fed for Fed-Supervised Insurance Firms

And now to return to our commentary a few weeks back about the stultifying impact of ill-thought through rules and regulations (at best) (Brexit has intervened).  This is our Regulatory State which broadly attempted to pick winners and losers and modify market behavior, to get an engineered outcome by using the blunderbuss of proscriptive rules and regulation.
Continue Reading A Trip Through the Labyrinth – The Regulatory Man in Full

We thought it would be useful to give a quick, interim update on the slow-motion train wreck that is our industry’s response to the upcoming effectiveness of the Risk Retention Rule.  For those of you who have been blessedly snoozing under a rock these past couple of years, the Risk Retention Rule becomes effective on Christmas Eve and applies to all transactions closed (priced?) after that date.  The Rule, to generalize a bit, requires the sponsor of a securitization to retain a 5% vertical or horizontal strip with the additional possibility of laying off some or all of that risk onto a qualified B piece buyer or a mortgage loan originator.  For more detail, please see our OnPoints, our risk retention briefing white papers and many, many back issues of this CrunchedCredit.

Here’s the headline in Muddville in May of 2017:

We As An Industry Are In Trouble. 

We as an industry don’t have a scalable solution to the problem.  We as an industry do not know what this will cost, who will pay for it, and to what extent this is an existential risk to CRE capital formation as it has been conducted for the past twenty-five years.Continue Reading Risk Retention: It’s the Fourth Quarter and the Home Team is Getting Glum

Last week, the House Committee on Financial Services reported out the Preserving Access to CRE Capital Act of 2016 (the “bill”) in a remarkably bipartisan sort of way (paving the way for: “Well, yes, I did vote for it, but then I voted against it.”).  The bill, which was drafted and backed by CREFC, would exempt certain single asset/single borrower securitizations from the risk retention requirements, would allow the B-piece buyer to acquire the risk retention piece in a senior/subordinate capital structure and loosen the criteria for a qualified commercial real estate loan to make it more useful for CMBS players endeavoring to meet the risk retention requirements of Dodd-Frank.  See Dechert’s OnPoint for a more detailed description of the bill.
Continue Reading Flash: Congress Fixes the CMBS Risk Retention Problem (Just Kidding)

iStock_000053495504_XXXLargeThe Great Equity Correction of 2015 that is now being enjoyed by all of us is a correction, and not the beginning, of the Great Bear Market of 2015 (from my lips to God’s ears). It reminds me of just how little we know about how all complex systems, like the global financial market (and don’t get me started on climate), function. Nonetheless, our Regulatory State behaves as if this was not true and as if wise governmental types can simply declaim new rules and regulations to get their very specifically-designed outcomes.
Continue Reading The Regulatory State: May We Have A Little Humility, Please?

We here at CrunchedCredit are getting ready, as we do each year at this time, to polish up the palantir and make our predictions and business projections about the coming year.  While it can be a fun exercise, it’s actually serious business.  To start with, you need a macro view of the geopolitical situation, the markets and the economy.  To not start with a macro view is to make a choice, and a bad choice at that. 
Continue Reading Schrodinger’s Cat