Economic Recovery

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‘Tis the season and I think it’s way overdue to put in a good word for sunny optimism.  It’s been a while since the Golden Turkeys, and I apologize for being offline.  This having to work for a living gets in the way of serious bloviating.  Here is what is bothering me.  The overall tone of the national dialogue as mediated through the mass media seems overly dark and bleak.  The Sunday talk shows and the business press seem to deliver day in and day out an entirely untoward and, in fact, largely data free bias toward pessimistic outcomes and gloom.  I think that’s wrong (so I’m really writing about how stupid and obdurately mule-headed, faux sophisticated pessimism about virtually everything really can be, but ode to that made for an awkward title.)
Continue Reading Ode to Optimism:  I’m Proudly Bullish (and not embarrassed to say so)!

Just when you thought the regulators had forgotten about HVCRE ADC, they issued a new notice of proposed rulemaking like they were Beyoncé surprise-dropping a new album. And then…they disappeared again! We were waiting for more news before alerting our readers but nothing has come to date. To bring those not in the HVCRE ADC-hive up to speed, the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) reformed the capital rule for acquisition, development and construction loans (HVCRE ADC exposures or loans) back in May 2018, but the regulations have yet to be conformed to the statutory regime.

Under the current statutory framework, an HVCRE ADC loan is a credit facility secured by land or improved real property which (A) primarily finances, has financed, or refinances the acquisition, development, or construction of real property; (B) has the purpose of providing financing to acquire, develop, or improve such real property into income-producing real property; and (C) is dependent upon future income or sales proceeds from, or refinancing of, such real property for the repayment of such credit facility. Among other exceptions, the current statutory regime includes an exemption for loans that finance the acquisition, development, or construction of one- to four-family residential properties (the paragraph 2(i)(A) exemption).

On July 12, 2019, the Federal Reserve, FDIC and OCC released a Notice of Proposed Rulemaking (2019 NPR), in response to comments submitted to their September 2018 Notice of Proposed Rulemaking (2018 NPR). The 2018 NPR was meant to conform the regulatory capital rule to the updates brought about in EGRRCPA and the 2019 NPR supplements the previous proposal to narrow the paragraph 2(i)(A) exemption.
Continue Reading HVCRE ADC Update: Regulators Propose Eliminating Exemption for Land Development Loans

My, my, what a couple of weeks.  People, don’t you understand that I’m trying to run a business here?  Is a recession on the doorstep or is that a 2022 thing?  Are things really bad, or really good?  How am I supposed to stay dispassionate and analytic when the stock market gyrates and the drumbeat of portentous news never stops?  The worst December in the market since the Depression says The Financial Times!  It’s very annoying and I feel very much put upon.

All of this has got me thinking, are we ignoring Macro?  Are we not seeing what’s actually in front of us?  Not seeing the Big Stuff?  There is surely enough disturbing things out there to get and hold our attention.  The stock market continues to oscillate widely, the 10-year Treasury Rate is now well below 3%, volume is up and every time another headline crosses the ticker, everything changes again.  Is our trade dispute with China existential?  Is Prime Minister May in or out – happy or sad?  Is Boris Johnson having a good hair day?  The Italians are leaping around and gesticulating broadly, outraged now about how France may be getting a pass on budget discipline.  If France starts to cheat (again), can the center hold?  Japan is building an aircraft carrier…think about it.  In China, some young general suggested it might be a good idea to shoot at an American warship in international waters.  There’s a great idea.  The Donald continues to tweet and we almost had a smack down in the oval office between the President, Nancy Pelosi and Chuck Schumer just last week. 
Continue Reading Ignoring Macro…Or Are We as Smart as a Horse?

The shear complexity of the modern world makes fools of us all.

It’s no wonder that conspiracy theories, just plain weird ideas and deeply counterfactual views abound these days. We don’t like to be bewildered or shocked by unexplainable events, and, regrettably we confront plenty of these every day. Confronted with the inexplicable, it is…

Did you know that the District of Columbia has assigned officers to enforce its police-your-dog laws? The Poop Police. How low do you have to go, how badly do you have to screw up to be assigned in the District of Columbia to the Poop Police? Do they go under cover? Do they pack heat? In risible juxtaposition to this Singapore-like nod to order and governance, we see our Congress attempting to do tax reform. What a mess. As I write this, the Tax Conference Committee has apparently settled on something and we will likely see a vote in both Houses this week. The belly-scratching, horse trading, posturing and the manufacturing of sly optics…ugh. At least it is almost over. Something to be said for that. It was a sorry exercise.
Continue Reading Our Nation’s Capital Has Dog Poop Police, But We Let the Congress Do This?

As we look back each November to bestow the year’s crop of Golden Turkeys to the silliest and most annoying instances of regulatory overreach, legislative inanity, governmental misfeasance or the mere idiotic behavior of people without any help from the government apparatchiki, there’s always a glorious excess of candidates. This whole commentary thing would be really hard if the world made sense and behaved in a predictable, rational, Newtonian universe sort of way, but blessedly it does not.

So, as we get ready for the season of cheer, the season of desperate efforts to close yet one more deal and the nice calculation of bonuses, and before we imbibe too much good food and drink to be at all disciplined, here is our list for 2017:
Continue Reading CrunchedCredit.com’s 8th Annual Golden Turkey Awards

On September 27, 2017, the Federal Reserve, FDIC and OCC released a Notice of Proposed Rulemaking (NPR) that they describe as simplifying compliance with certain aspects of the agencies’ risk based capital (RBC) rules to, among other things, replace the standardized approach’s (SA) treatment of HVCRE loans with a simpler treatment for most acquisition, development or construction (ADC) loans called high volatility acquisition, development or construction (HVADC). Spoiler alert: it just replaces vague and confusing rules with a slightly different set of vague and confusing rules.
Continue Reading Yakety Yak – Talk Back: Regulators Respond to HVCRE Complaints

As an industry, we remain in high dudgeon over the inanity of much of Dodd-Frank, the ideological and often unhinged regulatory instincts of our various governments and the vast amount of effort, time and money it takes to comply with the mind-numbing complexity of rules and regulations that seem to be largely untethered from the goal of solving actual problems. We winge. We boviate. We testify, write white papers, fund PACs and pursue “engagements” with the regulatory apparatchiki in the pursuit of sensible relief. But do we still really care?

Are we witnessing a process of reconciliation? Could it be that the capital markets have found a way to thrive inside the current regulatory state’s bear hug?
Continue Reading Welcome to Stockholm! We Are Learning To Love Our Regulatory State

Last week, an article written by Mr. Frank Partnoy, professor of law at the University of San Diego,  appeared in the Financial Times and was subsequently picked up by The Wall Street Journal.  Mr. Partnoy argues that the next global financial crisis will be found inside the CLO industry and that past is prologue.

I think he is looking under the wrong rock for the next global financial crisis and this note should serve as a letter to the editor in rebuttal, as it were.  (Perhaps I’ll send Professor Partnoy his own personalized copy.)

Here’s the news flash:  There will be another global financial crisis.  Death, taxes, the cycle and Page Six misbehavior will never go away.  However, history suggests that the next one will be less severe than the 2007-2009 meltdown which, one can hope will continue to be entitled to the honorific “The Great Recession” for many decades to come. 
Continue Reading The Sequel to the Global Financial Crisis Is Not the CLO! (Ok, Not Yet)

What in the world have we done to ourselves? Our CRE Securitization business, or at least the conduit part of our business, continues to shrink:  $800 billion in outstanding principal balance in 2007 and now, $400 billion?  Maybe, right now, we’re at a run rate of $50 billion per year.  Is that enough?  Does that deliver critical mass?  Are we a going concern?

Maybe.

As the business shrinks, the CMBS share of the Lehman Index (Bloomberg Index) continues to dwindle.   That imperils liquidity and the diminishment of liquidity itself becomes yet another reason to abandon the sector.  As that happens, some investors drop out, some “right size” their CMBS teams and as fewer analysts follow the space, the business again dwindles.  Net/net, investors lose interest as there are fewer and fewer reasons to buy CMBS bonds.  As the business gets smaller, less attention is paid by the mortgage banking community, fewer opportunities find their way to the CMBS window and other service providers are stressed. Wash, rinse and repeat until someone shuts off the lights and locks the door on the way out.

Okay, I’m overstating it a bit, but you get the idea.  We’ve got a problem.Continue Reading It’s Time to Bring Back the Square State Conduit:  If We Build It, They Will Come.