CMSA 2010 Government Relations Priorities
Commercial Mortgage Securities Association (CMSA), founded in 1994, is the international trade association representing the entire commercial real estate finance industry, with more than 275 member companies globally, and a presence in Europe, Japan and North America.
The core mission of CMSA is to promote the ongoing strength, liquidity and viability of commercial real estate finance worldwide. Over the last several years, the commercial mortgage-backed securities (CMBS) market has been a tremendous source of capital, providing unparalleled liquidity and contributing to economic growth. Today, the CMBS market totals approximately $700 billion, with virtually every single Congressional district having commercial projects financed through CMBS loans. However, the turmoil in our financial markets, coupled with the overall downturn in the U.S. economy, has severely constrained the CMBS market and created many pressing challenges. In fact, the CMBS market provided approximately $240 billion in financing in 2007 (nearly 50% of all commercial lending), but only provided $12 billion in issuance in 2008 and approximately $1 billion of private label CMBS issuance in 2009, despite enormous demand for capacity from borrowers. With hundreds of billions of commercial mortgage loans maturing in next several years, CMSA is actively engaged in efforts to provide liquidity and facilitate lending in the CMBS market
Unlike many trade organizations that represent a single group of competitors, CMSA is the collective voice of the entire commercial real estate capital finance market. The membership of CMSA is comprised of all market participants involved in the CMBS market from beginning to end – lenders who make initial loans, investment banks that package them into bonds, trustees that hold the loans that serve as the collateral for those bonds, rating agencies that rate the bonds, investors who purchase the bonds, loan servicers who service the loans on behalf of investors, as well as other service providers to the industry. It is from this unique and comprehensive perspective that CMSA is actively engaged in a number of issues important to the entire commercial real estate capital market finance industry.
TARP and Liquidity Proposals: As policymakers continue to examine and address turmoil in the financial sector, CMSA is dedicated to sharing the association’s perspective on commercial real estate finance. Since last year, CMSA has been actively engaged in highlighting and pursuing policy options aimed at providing liquidity and facilitating lending in the broader commercial mortgage market, while assisting policymakers on how the secondary markets can be utilized to alleviate the credit crisis. Specifically, the association strongly supported the expansion of the Term Asset-Backed Securities Lending Facility (TALF) to new issue and legacy CMBS for a five-year term, as well as the creation of the Public Private Investment Program (PPIP), to promote new lending and investing. CMSA also is committed to working on additional long-term solutions to ensure the market is able to meet ongoing commercial borrowing demands, and the association will continue to advise policymakers on how these and other tools can be structured to have a meaningful impact in supporting a commercial real estate recovery.
Financial/Securitization Reforms: In light of the ongoing turmoil in our financial markets, congressional policymakers, financial regulators and market participants have expressed strong interest in the need to overhaul the regulatory structure of the U.S. financial system. In June 2009, the Administration released a “blueprint” for financial regulatory reform, while Congress held several hearings on the topic and CMSA testified before the Senate Banking Committee. With reforms expected to be finalized in the 112th Congress, CMSA is fully engaged in these efforts urging policymakers to ensure that the final regulatory reform package does not negatively impact commercial real estate but, rather, is customized to reflect the unique nature of the CMBS market, which utilizes a third-party investor who purchases the first-loss position and re-underwrites all loans during the pre-issuance period. This CMSA-endorsed language was included in the regulatory reform bill passed by the House. Also included in the House passed reform bill is CMSA supported language that would require the Federal Reserve and financial regulators to examine the combined impact of new “retention” (or “skin-in-the-game”) requirements and accounting standards on credit availability, and to report to Congress with specific recommendations prior to any rulemaking on retention. In addition, CMSA will work to ensure that any GSE reform supports rather than undermines commercial real estate finance.
Likewise, CMSA also will continue to raise awareness about the importance of securitization, which has been a crucial and necessary tool for growth and success in commercial real estate finance, and to ensure that actions taken by other financial policymakers do not contradict or even negate the intended effects of the government implemented initiatives to assist in economic recovery efforts. The CMBS market is a responsible and key contributor to the overall economy that has promoted industry “best practices” and tremendous transparency. In fact, the CMBS market boasts unparalleled transparency made possible by the CMSA Investor Reporting Package ®, which tracks all property, loan and bond information and allows all market participants to view ongoing surveillance in a standardized form.
Covered Bonds: As policymakers explore ways to increase financing options, CMSA supports efforts to facilitate a U.S. commercial covered bond market in order to provide an additional source of liquidity through new and diverse funding sources. Specifically, CMSA is urging the FDIC to consider expanding the definition of eligible mortgages to include high quality commercial mortgage loans and CMBS. Further, CMSA worked with Members of Congress on the introduction of comprehensive legislation that would include high quality commercial mortgage loans and CMBS as eligible collateral in the emerging covered bond marketplace as well as testified before the House Financial Services on the topic. CMSA will continue to advocate for the inclusion of commercial mortgages in the covered bond market via legislation and regulatory approval.
Credit Rating Agency Reform: As financial regulators and policymakers continue credit rating agency reform efforts in light of issues in the residential and subprime markets, CMSA is an unyielding proponent for additional transparency about ratings and the methodologies used by the agencies, while strongly opposing proposals to differentiate ratings for structured finance using symbols (e.g. “AAA.SF”). CMSA worked to ensure the inclusion of language in the House reform bill to make differentiation ‘optional’ and contingent on not disrupting certain pension/state investment guidelines. CMSA members, particularly investors, have been strongly opposed to ratings differentiation given that it would create confusion, uncertainty and implementation issues that could impact liquidity. As further rating agency reforms are considered, CMSA will continue to urge policymakers to ensure that any changes are applied consistently and improve the understanding of ratings in order to instill confidence in our financial markets.
REMIC Reform: Last September, Treasury took final action on a request from CMSA and it’s industry partners to expand the types of permitted modifications allowed to be made to commercial loans held by a real estate mortgage investment conduit (REMIC) to include changes in collateral, guarantees, and credit enhancement of an obligation, and changes to the recourse nature of an obligation. The final regulations incorporate comments submitted by the coalition in response to the Treasury’s pilot program to bring the rules governing REMICs (in place since 1986) up to more reasonable current market standards. While CMSA applauds the actions taken by Treasury to allow greater flexibility in the REMIC rules, the association is very concerned that the final regulations, in their current form, will have serious and lasting consequences to both the CMBS market and the broader commercial real estate industry. Therefore, CMSA, the Mortgage Bankers Association and the Real Estate Roundtable are urging Treasury to reconsider the application of the regulations with regard to collateral releases. Separately, CMSA has been opposed to loan modification proposals that change the terms of contracts in ways that undermine investors who are critical to the flow of credit, while the association continues to work with members on reforms related to Real Estate Owned (REO) properties.
Securitization Accounting Reform: The Financial Accounting Standards Board (FASB) has concluded its project on proposed amendments to the accounting standards for securitization, with new final rules effective January 1, 2010. As such, the Qualifying Special Purpose Entity (QSPE), which makes securitization possible for CMBS, has been eliminated and all existing QSPEs will become Variable Interest Entities (VIEs) and subject to consolidation. Other asset-backed securities, such as home equity lines of credit, student loans, residential mortgage loans and credit card receivables, also utilize QSPE accounting structures for securitization purposes. Previously, the QSPE structure allowed issuers to receive “sales treatment” so that only investors who purchase bonds will reflect these assets on their balance sheet. Under the new changes to FAS 140 and FIN 46(R) by FASB, issuers may not receive sales accounting treatment, while investors may be forced to consolidate an entire pool of loans on their balance sheet, despite owning only a small fraction of the loans. CMSA continues to urge policymakers and standard-setters to provide more time for market participants to implement these far reaching and burdensome rule changes. CMSA is also urging policymakers to address this issue through a joint project with the International Accounting Standards Board (IASB) so that changes are consistent with efforts underway to converge and harmonize international accounting standards and that implementation for the securitized credit markets would occur only once and with limited disruption.