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.
Lots going on this week, including a MISMO Data Summit, federal risk retention proposals and the end of Osama Bin Laden.
MISMO Data Summit
Plans are full steam ahead for a C-MISMO data “Summit” May 16 at the MBA Servicing and Technology Conference in Chicago. About 75 individuals from 30 companies got personal invitations.
The Board of Governors and the MBA grouped the companies into six types: issuers, investors, rating agencies, servicers, GSEs and vendors. We split up the lists. My list consists of issuers and investors including Bank of America, Wells Fargo, JPMorgan, CWCapital, PNC, MetLife and New York Life.
The invite’s opening paragraph says:
“For the last several years, participation in, and funding for, Commercial MISMO (C-MISMO) has declined. Yet today our industry finds itself at a point where Commercial MISMO will be most needed, with the development of more standardized reporting systems and detailed regulatory oversight. Decisions need to be made regarding our industry’s belief in and support for C-MISMO. To strategically assess how C-MISMO should move forward, and to determine its direction, the Mortgage Bankers Association and MISMO’s Commercial Governance Committee would like to personally invite you to a MISMO Summit at this year’s Commercial/Multifamily Servicing and Technology Conference in Chicago.”
The Summit will either bring industry agreement on a common data standard with buy-in and commitment from the group, or it will be sparsely attended and/or bog down in debate with no clear agreement. I’ll report back after the conference on attendance and results.
Risk Retention
The federal regulators issued their joint proposals for risk retention a few weeks ago. They took a hard line with CMBS. While the rules do not go into effect until April 2013, and they might change after the comment period, they include three provisions that are unexpected and problematic:
Premium Capture Reserve Account – The regulators introduced the concept that issuers must not monetize and book the profits from a securitization until after all the bonds have been repaid instead of when they are issued upfront. This provision is a big change and a big deal.
Operating Advisor – The third party B Piece buyer will only satisfy the risk retention requirement if there is an “Operating Advisor” overseeing the asset management decisions of the special servicer / B Piece buyer.
Exempt Loan Test Too High – The regulators put such low LTV and high DSCR requirements that very few CMBS loans would qualify as being “exempt” from risk retention.
If the regulators take as hard a line on disclosure as they did on risk retention, adopting XML will be inevitable — after all, that’s what they intended from the beginning.
That being said, I think getting the disclosure requirements right is much more important than the risk retention rules. I would be happy if the regulators gave a bit on retention as long as they get the disclosure right. Hopefully the feds do as good a job on securitization reform as they did on taking out Osama.
OBL
I was as happy as anyone that we took out Osama Bin Laden. We were all touched by 9-11, and I chronicled my story in my first blog post.
The Navy Seal raid was amazing, and I am glad justice was delivered on the spot. I was in New York this week and went by ground zero to pay respects and see the progress of the Freedom Tower. Finally, the building is coming out of the ground.
The Freedom Tower!
— — —
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.
The industry trade group that controls the reporting standards for CMBS reporting, the CRE Finance Council, released the consensus version of the new reporting requirements for CMBS 2.0. The trade group spent over a year with investors, issuers and servicers trying to reach consensus on best practices and disclosure levels.
Standardized Annex A
The biggest part of the release is standardization of investor disclosures when initially selling CMBS bonds. In the past, each issuer would define what they would disclose in the initial prospectus, with the actual data fields being defined in Annex A to the prospectus. While there were plenty of similarities in the Annex A disclosures from one issuer to the next, they were not standardized. The new disclosures (see attached) made good progress on standardizing and requiring data disclosure related to:
1) The data needed to model the debt both within and outside the trust (the entire capital stack)
2) More details on historical operating statements (income and expenses)
CREFC also addressed standardization of the “typical” Reps and Warranties issuers make to bond investors, as well as the repurchase language/process the parties go through if there is a breach claim. Definitely an important step.
Effort Falls Short
In my view, despite the progress, the consensus disclosure standard falls short, specifically as it relates to disclosing the in place rent on the collateral (full rent rolls). Instead of agreeing to disclose this critical data, the “consensus” was to add information on two additional tenants so investors will now get information on the top 5 tenants in each property instead of just the top 3.
Instead of complying with Dodd-Frank and disclosing enough information to allow the investors/rating agencies to recreate their own underwriting models by disclosing the full rent roll, CREFC issued a 33-page “Principals Based Underwriting Template” in an effort to describe a “good” underwriting.
With all due respect, people in the business know how to underwrite, and a 33 page manual is a complete waste. Instead, the counterparties to the securitizations need the data to recreate an underwriting and make their own conclusions. Having an issuer state they “followed the manual” is nowhere near the same as disclosing the data to allow all parties to reach their own conclusions. The investors agreed and initially asked for full rent rolls but were not able to reach “consensus” on this issue so, instead, we are left with limited information on the “top 5.”
Active Few Weeks
I think the timing of these market standards indicates the “rules” from the SEC/regulators will soon be released. Later this week the regulators will release their conclusions on risk retention, and there is a rumor the SEC will be issuing its rules on Reg AB reform in the next few weeks/months. We will see if the regulators step up and require additional rent data or if CMBS 2.0 is really a lot more like CMBS 1.5.
— — —
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.
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
MISMO, Risk Retention and OBL
/0 Comments/in Industry news /by jimflahertyLots going on this week, including a MISMO Data Summit, federal risk retention proposals and the end of Osama Bin Laden.
MISMO Data Summit
Plans are full steam ahead for a C-MISMO data “Summit” May 16 at the MBA Servicing and Technology Conference in Chicago. About 75 individuals from 30 companies got personal invitations.
The Board of Governors and the MBA grouped the companies into six types: issuers, investors, rating agencies, servicers, GSEs and vendors. We split up the lists. My list consists of issuers and investors including Bank of America, Wells Fargo, JPMorgan, CWCapital, PNC, MetLife and New York Life.
The invite’s opening paragraph says:
“For the last several years, participation in, and funding for, Commercial MISMO (C-MISMO) has declined. Yet today our industry finds itself at a point where Commercial MISMO will be most needed, with the development of more standardized reporting systems and detailed regulatory oversight. Decisions need to be made regarding our industry’s belief in and support for C-MISMO. To strategically assess how C-MISMO should move forward, and to determine its direction, the Mortgage Bankers Association and MISMO’s Commercial Governance Committee would like to personally invite you to a MISMO Summit at this year’s Commercial/Multifamily Servicing and Technology Conference in Chicago.”
The Summit will either bring industry agreement on a common data standard with buy-in and commitment from the group, or it will be sparsely attended and/or bog down in debate with no clear agreement. I’ll report back after the conference on attendance and results.
Risk Retention
The federal regulators issued their joint proposals for risk retention a few weeks ago. They took a hard line with CMBS. While the rules do not go into effect until April 2013, and they might change after the comment period, they include three provisions that are unexpected and problematic:
If the regulators take as hard a line on disclosure as they did on risk retention, adopting XML will be inevitable — after all, that’s what they intended from the beginning.
That being said, I think getting the disclosure requirements right is much more important than the risk retention rules. I would be happy if the regulators gave a bit on retention as long as they get the disclosure right. Hopefully the feds do as good a job on securitization reform as they did on taking out Osama.
OBL
I was as happy as anyone that we took out Osama Bin Laden. We were all touched by 9-11, and I chronicled my story in my first blog post.
The Navy Seal raid was amazing, and I am glad justice was delivered on the spot. I was in New York this week and went by ground zero to pay respects and see the progress of the Freedom Tower. Finally, the building is coming out of the ground.
The Freedom Tower!
— — —
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 Releases Market Standards for CMBS 2.0
/0 Comments/in Industry news, Industry standards /by jimflahertyThe industry trade group that controls the reporting standards for CMBS reporting, the CRE Finance Council, released the consensus version of the new reporting requirements for CMBS 2.0. The trade group spent over a year with investors, issuers and servicers trying to reach consensus on best practices and disclosure levels.
Standardized Annex A
The biggest part of the release is standardization of investor disclosures when initially selling CMBS bonds. In the past, each issuer would define what they would disclose in the initial prospectus, with the actual data fields being defined in Annex A to the prospectus. While there were plenty of similarities in the Annex A disclosures from one issuer to the next, they were not standardized. The new disclosures (see attached) made good progress on standardizing and requiring data disclosure related to:
1) The data needed to model the debt both within and outside the trust (the entire capital stack)
2) More details on historical operating statements (income and expenses)
3) Better data on escrows and reserves
Download pdf: CREFC Standardized Annex A – December 2010
CREFC also addressed standardization of the “typical” Reps and Warranties issuers make to bond investors, as well as the repurchase language/process the parties go through if there is a breach claim. Definitely an important step.
Effort Falls Short
In my view, despite the progress, the consensus disclosure standard falls short, specifically as it relates to disclosing the in place rent on the collateral (full rent rolls). Instead of agreeing to disclose this critical data, the “consensus” was to add information on two additional tenants so investors will now get information on the top 5 tenants in each property instead of just the top 3.
Instead of complying with Dodd-Frank and disclosing enough information to allow the investors/rating agencies to recreate their own underwriting models by disclosing the full rent roll, CREFC issued a 33-page “Principals Based Underwriting Template” in an effort to describe a “good” underwriting.
With all due respect, people in the business know how to underwrite, and a 33 page manual is a complete waste. Instead, the counterparties to the securitizations need the data to recreate an underwriting and make their own conclusions. Having an issuer state they “followed the manual” is nowhere near the same as disclosing the data to allow all parties to reach their own conclusions. The investors agreed and initially asked for full rent rolls but were not able to reach “consensus” on this issue so, instead, we are left with limited information on the “top 5.”
Active Few Weeks
I think the timing of these market standards indicates the “rules” from the SEC/regulators will soon be released. Later this week the regulators will release their conclusions on risk retention, and there is a rumor the SEC will be issuing its rules on Reg AB reform in the next few weeks/months. We will see if the regulators step up and require additional rent data or if CMBS 2.0 is really a lot more like CMBS 1.5.
— — —
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