We had a third committee call today on the MISMO Rent Roll and Operating Statement Standards Committee. We have had 15-20 people on all the calls. The first two focused on the rent roll; this one focused on operating statements. We are making good progress and have basically finished up the rent roll and operating statement header.
Operating statement detail (the NOI categories / chart of accounts) is still being debated. The issue is how much structure do we put in the XML re: assigning detailed NOI categories to roll up reporting categories and property type. We have two more calls scheduled (July 23 and August 6) to hash out the structure. We are still planning on getting the MISMO XML schema ready for approval by September.
The question is: Will anyone use it?
— — —
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.
https://www.cmbs.com/wp-content/uploads/2019/03/cmbslogo030619.png00jimflahertyhttps://www.cmbs.com/wp-content/uploads/2019/03/cmbslogo030619.pngjimflaherty2009-07-09 20:56:512020-09-16 20:57:48Good progress on MISMO standards
Treasury Secretary Timothy Geithner’s proposal to “fix” securitization was released last week, and it is a mixed bag for CMBS.
On the positive side, he stated the SEC should promote increased transparency for both the deals and the rating agency methodology used to rate the deals. The best line was “Investors and credit rating agencies should have access to the information necessary to assess the credit quality of the assets underlying a securitization transaction at inception and over the life of the transaction.”
Agreed!
The bad news for CMBS lies in two other proposals:
1. The issuer (or sponsor) of a securitization be forced to retain a 5 percent interest in a pool that cannot be hedged or sold.
2. Issuers cannot achieve a “gain on sale” accounting treatment until the underlying loans are paid off.
The whole point of securitization is to transfer risk. Taking both accounting and credit incentives away is troublesome and unproductive, making securitization harder, not easier. Instead, we should focus on freeing the data so investors and rating agencies know the value of the collateral. This way, we will re-establish the credibility of our asset class.
Investors are not dumb
Of course if you cannot transfer the risk because you cannot find a buyer, then you are stuck. And the only investors today are value investors who will only buy CMBS at reasonable spreads if we share our data and prove our value.
While aligning economic interest is absolutely a good idea, I would suggest this point is so fundamental it should be assumed as mandatory. If the issuer and the investor do not have aligned interests (i.e. we issue and securitize loans that aren’t actually going to pay back), we should not even consider bringing back CMBS.
W T F with 5%?
Why did Geithner come up with 5%? Why not 10%, 20%, 50%? How much equity is needed to keep all players’ interests aligned? The fact is the answer does not matter because the amount changes depending on the market. Today, you need 100% equity (or close to it). In 2007, you needed 0% (or close to it).
Standards and Transparency
While coming up with an equity/skin-in-the-game component is a fairly simple “tweak,” it does not represent the permanent reforms that are required. The keys are standards and transparency with all parties using common underwriting models.
I rant about this in one of my first blog postings which was a response to Ethan Penner’s article on this issue: Transparency vs. Skin.
The Proposal and the CMSA Response
Click here to download the Obama regulatory reform proposal.
Click here to download CMSA President Par Sargent’s response to the proposal.
— — —
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.
https://www.cmbs.com/wp-content/uploads/2019/03/cmbslogo030619.png00jimflahertyhttps://www.cmbs.com/wp-content/uploads/2019/03/cmbslogo030619.pngjimflaherty2009-06-25 20:58:072020-09-16 21:00:02Geithner Proposal a Mixed Bag
July 31: Checking in
/0 Comments/in Industry news, Industry standards, What's going on /by jimflahertyTALF, LoopNet vs. CoStar, CoStar and PPR, MISMO and a vacation in Yosemite … a ton has happened in the past few weeks.
Read more
Good progress on MISMO standards
/0 Comments/in Industry standards /by jimflahertyWe had a third committee call today on the MISMO Rent Roll and Operating Statement Standards Committee. We have had 15-20 people on all the calls. The first two focused on the rent roll; this one focused on operating statements. We are making good progress and have basically finished up the rent roll and operating statement header.
Operating statement detail (the NOI categories / chart of accounts) is still being debated. The issue is how much structure do we put in the XML re: assigning detailed NOI categories to roll up reporting categories and property type. We have two more calls scheduled (July 23 and August 6) to hash out the structure. We are still planning on getting the MISMO XML schema ready for approval by September.
The question is: Will anyone use it?
— — —
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
Geithner Proposal a Mixed Bag
/0 Comments/in Industry news, Industry standards /by jimflahertyTreasury Secretary Timothy Geithner’s proposal to “fix” securitization was released last week, and it is a mixed bag for CMBS.
On the positive side, he stated the SEC should promote increased transparency for both the deals and the rating agency methodology used to rate the deals. The best line was “Investors and credit rating agencies should have access to the information necessary to assess the credit quality of the assets underlying a securitization transaction at inception and over the life of the transaction.”
Agreed!
The bad news for CMBS lies in two other proposals:
1. The issuer (or sponsor) of a securitization be forced to retain a 5 percent interest in a pool that cannot be hedged or sold.
2. Issuers cannot achieve a “gain on sale” accounting treatment until the underlying loans are paid off.
The whole point of securitization is to transfer risk. Taking both accounting and credit incentives away is troublesome and unproductive, making securitization harder, not easier. Instead, we should focus on freeing the data so investors and rating agencies know the value of the collateral. This way, we will re-establish the credibility of our asset class.
Investors are not dumb
Of course if you cannot transfer the risk because you cannot find a buyer, then you are stuck. And the only investors today are value investors who will only buy CMBS at reasonable spreads if we share our data and prove our value.
While aligning economic interest is absolutely a good idea, I would suggest this point is so fundamental it should be assumed as mandatory. If the issuer and the investor do not have aligned interests (i.e. we issue and securitize loans that aren’t actually going to pay back), we should not even consider bringing back CMBS.
W T F with 5%?
Why did Geithner come up with 5%? Why not 10%, 20%, 50%? How much equity is needed to keep all players’ interests aligned? The fact is the answer does not matter because the amount changes depending on the market. Today, you need 100% equity (or close to it). In 2007, you needed 0% (or close to it).
Standards and Transparency
While coming up with an equity/skin-in-the-game component is a fairly simple “tweak,” it does not represent the permanent reforms that are required. The keys are standards and transparency with all parties using common underwriting models.
I rant about this in one of my first blog postings which was a response to Ethan Penner’s article on this issue: Transparency vs. Skin.
The Proposal and the CMSA Response
Click here to download the Obama regulatory reform proposal.
Click here to download CMSA President Par Sargent’s response to the proposal.
— — —
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