The leadership at C-MISMO (which I am a part of) has been trying to decide the next steps to promote standards adoption. Toward that end, we hosted a “MISMO Summit” in May to seek support. At the meeting, it was clear a group of people wanted to put the entire effort into a hibernation mode.
These people argue C-MISMO should be shut down because there is no interest in implementing common, industry-wide standards. Most of the existing industry players (especially mortgage bankers) are satisfied with the status quo. I’ve known they don’t want standardization, but I was surprised when they actually tried to kill it.
Coup Attempt
In late June there were both formal and informal efforts by certain members of the MBA to kill C-MISMO by shutting it down. A proposal letter was drafted and circulated through the MBA that stated “it is not a good use of resources at this time to continue to create new standards.” The letter recommended “the development of new standards by Commercial MISMO be halted.” The effort to kill C-MISMO was pursued all the way to the Board of Directors of the MBA, where it was formally discussed.
Fortunately, the recommendation to hibernate C-MISMO was rejected by MBA leadership. We have been given the green light to keep going and, from what I understand, the firms pushing for the C-MISMO shut-down have backed down.
Origination Standard
When the governance of C-MISMO found out about the proposal to kill our efforts, we initially laughed because we felt like we were being fired from volunteer jobs. But then we started to get annoyed. It is offensive that people would actively oppose open standards. So instead of shutting down shop, we are going on the offensive.
Yesterday, C-MISMO leadership voted to create a new standard we are calling the Origination Standard. This data standard will contain all the information needed to re-underwrite and make a commercial real estate loan. We are purposefully focused on the front end data package needed to make a loan versus the back end investor reporting package. While the goal is big, the existing C-MISMO data schema is complete enough that this should be a manageable effort. We are going to get started in September.
We also agreed to create a GSE MISMO Adoption Task Force, and we are going to pursue a Rating Agency Data Standard.
So much for going into hibernation.
— — —
Jim Flaherty is CEO of CMBS.com and the creator of the Backshop loan origination system. He is a trained credit professional with experience installing enterprise underwriting systems for commercial real estate lenders, rating agencies and investors.
I attended the CREFC Annual Conference last week in New York, which was also attended by about 1,000 people representing all the different segments of the CMBS industry (Issuers, Investors, Servicers, and Professionals).
I would describe the mood as cautious due to recent spread widening, a perception that CMBS underwriting standards have already deteriorated and a widespread belief that the “reforms” implemented for CMBS 2.0 don’t amount to much.
What struck me most during the conference was the growing number of people calling for transparency. While not a majority yet, I would characterize the movement as a vocal minority (as opposed to a few individuals just last year) evidenced by:
1) Investor Demands
All the securitizations that have been done since the crash have been fully transparent on the initial loan level disclosures to the investors (Annex A data). These disclosures have included rent rolls, issuer underwriting models and appraisals. The investors have gotten used to this level of disclosure. Now they demand it.
The problem is all the recent securitizations have been private deals done under SEC Rule 144a, not publicly registered bonds. Since the deals were private, the issuers have been willing to share the information through password-protected Web sites, but the issuers are not yet willing to disclose the same level of data for public deals.
Most folks believe we have to get back to public deals for CMBS to truly recover, but when we asked investors if they are willing to trade public registration for the increased data they would receive up front, they all said no. They would live with the restrictions of 144A Bonds before they would go back to the old, insufficient upfront data disclosures. The folks at CRE Direct wrote a great article on this topic if you are interested.
2) IRP Committee
Since the CREFC put a stop to any changes to the IRP in 2007, there has been a lot of talk about the industry increasing disclosures on its own, but there has been very limited action.
This year hopefully signaled the start of CREFC allowing additional fields to be disclosed in the IRP. The IRP committee stated they would be forming work groups to recommend additional disclosures. While I am pessimistic that true disclosure will actually happen through this effort (I believe regulatory action is the only thing that will work), at least there is a committee being formed to consider new additions.
The best line came when an IRP committee member (not me) said something like “the industry will lose the support of the regulators if we do not show progress in making the IRP dynamic. The fact that the IRP has not changed much in years does not support the statements that CMBS has a dynamic and complete set of disclosures already in place.” Well said.
3) Regulatory Reform
While most of the discussion on regulatory reform was based on risk retention and the roll of the operating advisor, I heard more than one person state risk retention was a side show compared to the upcoming Reg AB changes that will determine the level and format of the disclosures that will be required for public bonds (aka Annex A and IRP in CMBS and Schedule L and LD in Reg AB). If the regulators get it right, the required transparency will be more meaningful than risk retention.
4) New CREFC Leadership
Every year the trade group gets a new president. This year the job goes to Jack Cohen, a successful, long-time industry player from Chicago who made his money in the mortgage banking business. He has a different perspective than most, and his acceptance speech during the conference suggested he believes all industry participants must cooperate at an increased level for the good of the whole industry — not only for our individual firms’ short term interests.
Another potentially significant change is the hiring of Steve Renna as the new CEO of CREFC. He seems like a practical guy, and the fact that he has an office in DC suggests he may take a leadership role in the regulatory process.
I think the spread widening and the cautious attitude might be helpful to the recovery of CMBS. We are an industry that only has a six-month memory, so reminding everyone that spreads do not always tighten should be helpful in promoting the need for transparency and, most importantly, prudent and profitable deal making at appropriate risk adjusted spreads.
— — —
Jim Flaherty is CEO of CMBS.com and the creator of the Backshop loan origination system. He is a trained credit professional with experience installing enterprise underwriting systems for commercial real estate lenders, rating agencies and investors.
I’m fresh back from a pair of industry get-togethers. C-MISMO is floundering; retail seems to be recovering.
MISMO Summit
Last week I was in Chicago at the MBA’s annual Commercial Servicing and Technology Conference, where we hosted a MISMO summit in an effort to promote the adoption of industry standards. The meeting was fairly well attended with about 40 people from several of the major servicers, lenders and service providers.
There were no “breakthroughs,” and the whole session seemed like more of an explanation why standards were not being adopted as opposed to a renewed commitment to make standard adoption a priority. More specifically:
1. Participants seemed to understand the value of standards in the abstract, but few had real-life experience with using standards to become more efficient.
2. There seemed to be more value given to the C-MISMO data dictionary than the XML schema itself, especially from the business people in the room.
3. Of the 40 or so attendees in the room, only four companies were current MISMO subscribers. No attendees that were not already MISMO subscribers offered to join MISMO or contribute additional time or funding to the standards effort.
4. The MBA and MERS signaled for the first time that if membership and funding do not improve, it will consider shutting down the C-MISMO effort.
Where do we go from here?
The summit ended with the moderators asking the question of where we go from here. After debate on whether we were really making progress, there seemed to be two choices:
1. Reorient/rebrand MISMO to focus on the common vocabulary (Logical Data Dictionary) and educate/support industry and regulators to help them implement or accept MISMO and de-emphasize XML and technology.
2. Consider putting Commercial MISMO in some type of hibernation status.
The Commercial Governance Committee has been tasked with making a recommendation on next steps. If the recommendation is to move forward, we will have to present a budget and obtain commitments from firms willing to pay subscription rates that equal the costs of running C-MISMO. While we on governance are eternally optimistic and are inclined to push ahead, it is becoming clear that, if we cannot find the financial support from the industry, the MBA is likely to pull the plug on the C-MISMO effort. Stay tuned. …
ICSC RECon convention
This week I was in Vegas for a trade show put on by the International Council of Shopping Centers (ICSC). RECon is the biggest annual conference in the real estate industry. ICSC is so big because it attracts retail property owners and all the different groups selling to these companies. Attendance was about 30,000 people with about 1,000 exhibitors including leasing brokers, tenants, lenders and service providers. Seeing the various wings of the Las Vegas Convention Center filled with 1,000 exhibitor booths was impressive.
The mood and general activity was more upbeat than the last few years, but still way off the peak. I had an interesting conversation with a person at the bar at my hotel (stayed at the Cosmopolitan which I recommend) who used to be a mortgage broker but switched to being a solar systems salesperson during the downturn. Instead of selling debt to property owners, he was now selling solar energy systems, and he was exhibiting at the show. An example of the lasting effects the financial crisis has had on individual careers and how the industry has changed. Nonetheless, the mood seemed to be more “normal” than “distressed” and the retail recovery seemed well on its way.
— — —
Jim Flaherty is CEO of CMBS.com and the creator of the Backshop loan origination system. He is a trained credit professional with experience installing enterprise underwriting systems for commercial real estate lenders, rating agencies and investors.
C-MISMO survives coup attempt
/0 Comments/in Industry news, Industry standards /by jimflahertyThe leadership at C-MISMO (which I am a part of) has been trying to decide the next steps to promote standards adoption. Toward that end, we hosted a “MISMO Summit” in May to seek support. At the meeting, it was clear a group of people wanted to put the entire effort into a hibernation mode.
These people argue C-MISMO should be shut down because there is no interest in implementing common, industry-wide standards. Most of the existing industry players (especially mortgage bankers) are satisfied with the status quo. I’ve known they don’t want standardization, but I was surprised when they actually tried to kill it.
Coup Attempt
In late June there were both formal and informal efforts by certain members of the MBA to kill C-MISMO by shutting it down. A proposal letter was drafted and circulated through the MBA that stated “it is not a good use of resources at this time to continue to create new standards.” The letter recommended “the development of new standards by Commercial MISMO be halted.” The effort to kill C-MISMO was pursued all the way to the Board of Directors of the MBA, where it was formally discussed.
Fortunately, the recommendation to hibernate C-MISMO was rejected by MBA leadership. We have been given the green light to keep going and, from what I understand, the firms pushing for the C-MISMO shut-down have backed down.
Origination Standard
When the governance of C-MISMO found out about the proposal to kill our efforts, we initially laughed because we felt like we were being fired from volunteer jobs. But then we started to get annoyed. It is offensive that people would actively oppose open standards. So instead of shutting down shop, we are going on the offensive.
Yesterday, C-MISMO leadership voted to create a new standard we are calling the Origination Standard. This data standard will contain all the information needed to re-underwrite and make a commercial real estate loan. We are purposefully focused on the front end data package needed to make a loan versus the back end investor reporting package. While the goal is big, the existing C-MISMO data schema is complete enough that this should be a manageable effort. We are going to get started in September.
We also agreed to create a GSE MISMO Adoption Task Force, and we are going to pursue a Rating Agency Data Standard.
So much for going into hibernation.
— — —
Jim Flaherty is CEO of CMBS.com and the creator of the Backshop loan origination system. He is a trained credit professional with experience installing enterprise underwriting systems for commercial real estate lenders, rating agencies and investors.
www.cmbs.com
www.backshop.com
CREFC Cautious
/0 Comments/in Industry news, Industry standards /by jimflahertyI attended the CREFC Annual Conference last week in New York, which was also attended by about 1,000 people representing all the different segments of the CMBS industry (Issuers, Investors, Servicers, and Professionals).
I would describe the mood as cautious due to recent spread widening, a perception that CMBS underwriting standards have already deteriorated and a widespread belief that the “reforms” implemented for CMBS 2.0 don’t amount to much.
What struck me most during the conference was the growing number of people calling for transparency. While not a majority yet, I would characterize the movement as a vocal minority (as opposed to a few individuals just last year) evidenced by:
1) Investor Demands
All the securitizations that have been done since the crash have been fully transparent on the initial loan level disclosures to the investors (Annex A data). These disclosures have included rent rolls, issuer underwriting models and appraisals. The investors have gotten used to this level of disclosure. Now they demand it.
The problem is all the recent securitizations have been private deals done under SEC Rule 144a, not publicly registered bonds. Since the deals were private, the issuers have been willing to share the information through password-protected Web sites, but the issuers are not yet willing to disclose the same level of data for public deals.
Most folks believe we have to get back to public deals for CMBS to truly recover, but when we asked investors if they are willing to trade public registration for the increased data they would receive up front, they all said no. They would live with the restrictions of 144A Bonds before they would go back to the old, insufficient upfront data disclosures. The folks at CRE Direct wrote a great article on this topic if you are interested.
2) IRP Committee
Since the CREFC put a stop to any changes to the IRP in 2007, there has been a lot of talk about the industry increasing disclosures on its own, but there has been very limited action.
This year hopefully signaled the start of CREFC allowing additional fields to be disclosed in the IRP. The IRP committee stated they would be forming work groups to recommend additional disclosures. While I am pessimistic that true disclosure will actually happen through this effort (I believe regulatory action is the only thing that will work), at least there is a committee being formed to consider new additions.
The best line came when an IRP committee member (not me) said something like “the industry will lose the support of the regulators if we do not show progress in making the IRP dynamic. The fact that the IRP has not changed much in years does not support the statements that CMBS has a dynamic and complete set of disclosures already in place.” Well said.
3) Regulatory Reform
While most of the discussion on regulatory reform was based on risk retention and the roll of the operating advisor, I heard more than one person state risk retention was a side show compared to the upcoming Reg AB changes that will determine the level and format of the disclosures that will be required for public bonds (aka Annex A and IRP in CMBS and Schedule L and LD in Reg AB). If the regulators get it right, the required transparency will be more meaningful than risk retention.
4) New CREFC Leadership
Every year the trade group gets a new president. This year the job goes to Jack Cohen, a successful, long-time industry player from Chicago who made his money in the mortgage banking business. He has a different perspective than most, and his acceptance speech during the conference suggested he believes all industry participants must cooperate at an increased level for the good of the whole industry — not only for our individual firms’ short term interests.
Another potentially significant change is the hiring of Steve Renna as the new CEO of CREFC. He seems like a practical guy, and the fact that he has an office in DC suggests he may take a leadership role in the regulatory process.
I think the spread widening and the cautious attitude might be helpful to the recovery of CMBS. We are an industry that only has a six-month memory, so reminding everyone that spreads do not always tighten should be helpful in promoting the need for transparency and, most importantly, prudent and profitable deal making at appropriate risk adjusted spreads.
— — —
Jim Flaherty is CEO of CMBS.com and the creator of the Backshop loan origination system. He is a trained credit professional with experience installing enterprise underwriting systems for commercial real estate lenders, rating agencies and investors.
www.cmbs.com
www.backshop.com
MISMO Summit and ICSC RECon convention
/0 Comments/in Uncategorized /by jimflahertyI’m fresh back from a pair of industry get-togethers. C-MISMO is floundering; retail seems to be recovering.
MISMO Summit
Last week I was in Chicago at the MBA’s annual Commercial Servicing and Technology Conference, where we hosted a MISMO summit in an effort to promote the adoption of industry standards. The meeting was fairly well attended with about 40 people from several of the major servicers, lenders and service providers.
There were no “breakthroughs,” and the whole session seemed like more of an explanation why standards were not being adopted as opposed to a renewed commitment to make standard adoption a priority. More specifically:
1. Participants seemed to understand the value of standards in the abstract, but few had real-life experience with using standards to become more efficient.
2. There seemed to be more value given to the C-MISMO data dictionary than the XML schema itself, especially from the business people in the room.
3. Of the 40 or so attendees in the room, only four companies were current MISMO subscribers. No attendees that were not already MISMO subscribers offered to join MISMO or contribute additional time or funding to the standards effort.
4. The MBA and MERS signaled for the first time that if membership and funding do not improve, it will consider shutting down the C-MISMO effort.
Where do we go from here?
The summit ended with the moderators asking the question of where we go from here. After debate on whether we were really making progress, there seemed to be two choices:
1. Reorient/rebrand MISMO to focus on the common vocabulary (Logical Data Dictionary) and educate/support industry and regulators to help them implement or accept MISMO and de-emphasize XML and technology.
2. Consider putting Commercial MISMO in some type of hibernation status.
The Commercial Governance Committee has been tasked with making a recommendation on next steps. If the recommendation is to move forward, we will have to present a budget and obtain commitments from firms willing to pay subscription rates that equal the costs of running C-MISMO. While we on governance are eternally optimistic and are inclined to push ahead, it is becoming clear that, if we cannot find the financial support from the industry, the MBA is likely to pull the plug on the C-MISMO effort. Stay tuned. …
ICSC RECon convention
This week I was in Vegas for a trade show put on by the International Council of Shopping Centers (ICSC). RECon is the biggest annual conference in the real estate industry. ICSC is so big because it attracts retail property owners and all the different groups selling to these companies. Attendance was about 30,000 people with about 1,000 exhibitors including leasing brokers, tenants, lenders and service providers. Seeing the various wings of the Las Vegas Convention Center filled with 1,000 exhibitor booths was impressive.
The mood and general activity was more upbeat than the last few years, but still way off the peak. I had an interesting conversation with a person at the bar at my hotel (stayed at the Cosmopolitan which I recommend) who used to be a mortgage broker but switched to being a solar systems salesperson during the downturn. Instead of selling debt to property owners, he was now selling solar energy systems, and he was exhibiting at the show. An example of the lasting effects the financial crisis has had on individual careers and how the industry has changed. Nonetheless, the mood seemed to be more “normal” than “distressed” and the retail recovery seemed well on its way.
— — —
Jim Flaherty is CEO of CMBS.com and the creator of the Backshop loan origination system. He is a trained credit professional with experience installing enterprise underwriting systems for commercial real estate lenders, rating agencies and investors.
www.cmbs.com
www.backshop.com