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
Risk Retention Final Rule
Risk Retention: It’s the Fourth Quarter and the Home Team is Getting Glum
By Rick Jones on
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