The CMSA conference in Washington, DC just ended and the transparency issue was one of (if not the) dominant issues of the conference. Many attendees — as well as the guest speakers that included a senator, two congressmen, the head of the FDIC and a treasury spokesman — stressed transparency as critical to market recovery and the intent of the reform legislation.

Over 1,000 people showed up, and the parties were actually pretty good. Although we all missed South Beach, it was fun to be in DC on the one year anniversary of the inauguration and on the day that Teddy Kennedy’s seat went red.

The White House

IRP Committee
The day started with the IRP Committee meeting, where we learned about a new structure the CMSA put in place to facilitate the process of determining policy.

The idea is to create a series of forums that will give voices to the interests of the different types of CMSA members (Investors, Servicers, Portfolio Lenders, Multifamily/GSE). The CMSA stated that recommendations from the forums would influence CMSA policy.

So, if we could get a forum to conclude the IRP should change to XML, the committee could finally move ahead on the conversion. I gave the audience an update on the MISMO standards, and how they were improved from the original proposal, and then we headed off to the Investor and Servicer Forums.

Investor and Servicer Forums
The debate regarding rent roll disclosure really started in the Investor Forum and was brought to a head in the Servicers Forum.

A CMBS trader from a large money manager and I both asked about disclosing rent rolls as an essential element to our disclosure levels as an asset class. We both pointed out that without disclosing full rent rolls, CMBS was not a transparent asset class and would, therefore, suffer in the eyes of investors. The response from the panel was mostly dismissive.

But: The panel had to address the question twice, not all panel participants were 100% negative and I was not the only one asking.

Agenda
There was enough coverage on this issue and enough recognition by the CMSA that this issue needs to be addressed that transparency is at least on the agenda for consideration again.

Now, let’s see if the forums work as intended and if we can get positive movement out of the CMSA.

— — —

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

The rent roll and operating statements standards we’ve been working on for the past six months are finished. They are posted on MISMO’s Commercial Mortgage Specifications page. Now it’s time to promote the benefits of compliance to ensure widespread industry adoption.

I will be at the CMSA Conference next week in Washington, DC and the MBA CREF Conference in Las Vegas in early February drumming up support. If not now, when?

Keep reading for the MISMO press release.

Commercial MISMO Releases Standards For Rent Roll and Operating Statements

RESTON, VA, January 12, 2010 – The Mortgage Industry Standards and Maintenance Organization (MISMO) announces the release of two new commercial real estate XML standards for the exchange of financial data. The Rent Roll and Operating Statement Version 2.0.1 specifications began their 30 day IPR Disclosure period on January 6, 2010. These standards provide a normalized way for borrowers, servicers, lenders, investors, and regulators to share critical financial information on all types of commercial real estate collateral.

Currently, most participants in commercial real estate finance are unable to access critical financial data contained in rent rolls and operating statements in a timely and useable format to perform easy and accurate valuations of the underlying collateral. These new standards provide the road map to move and access this data in XML format from one system to another and from one company to another. MISMO believes adoption of these standards will serve at least two immediate needs:

Internal Risk Management: Within financial organizations, the need to report on asset valuation for all business lines has increased. For commercial real estate, the most important data elements needed to perform accurate asset valuations are found on rent rolls and operating statements. Normalizing the data structure for such critical information allows valuation models to work. These standards provide that road map.

External Reporting Transparency: Increased transparency in securitized finance is generally supported by both industry players and regulators alike. The concept that rating agencies and investors should have access to enough information to value the underlying assets in any securitization is common sense and a key component of regulatory reform that enjoys bipartisan congressional support. These standards provide a foundation for parties that are required to report to investors, rating agencies or regulators on their commercial real estate portfolios.

About MISMO
The Mortgage Industry Standards Maintenance Organization (MISMO), a not-for-profit subsidiary of the Mortgage Bankers Association (MBA) and managed by MERSCORP, Inc., is the leading technology standards development body for both the Residential and Commercial industry segments. MISMO promotes data consistency throughout the broader industry, reduces processing costs, increases transparency, and boosts investor confidence in mortgages as an asset class, while passing cost savings on to the consumer. More information on MISMO can be found at www.mismo.org.

FOR QUESTIONS, PLEASE CONTACT
Gloria Zimmer
800-646-6377

— — —

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

Washington, DC – This morning I attended the House Financial Service Committee markup/debate meeting for the Accountability and Transparency in Rating Agency Act — House Bill 3890.

Read more

The SEC announced new rules a few weeks ago regarding structured finance and securitization. One rule was covered extensively in the press and has been criticized as more “extend and pretend.” The other, which was not as well covered, is a huge victory for those of us seeking more CMBS transparency.

The well-covered rule granted CMBS loan servicers more leeway in restructuring loans before they go into default. This issue was pushed by trade groups representing property owners under the hope that loans could be extended within the CMBS structure before going into payment default, which would help liquidity issues. Critics say that ruling just promotes the “extend and pretend” mentality.

A second ruling was not covered as extensively in the press, but it represents a huge victory for those of us seeking more transparency in CMBS.

The SEC ruled that issuers of structured products have to share the underlying data (rent rolls, underwriting assumptions, financial models) with all rating agencies, regardless of whether they were hired to rate the deal or not. The intent of the SEC was to discourage the issuers from “shopping for ratings” and to allow all rating agencies to provide analysis/ratings on deals, even if they were not hired by the issuer.

In CMBS, this issue was pushed successfully by Rob Dobilas, CEO of Realpoint (congrats Rob!). Realpoint is a rating agency with a different business model than the others. They rate all CMBS deals and sell their opinions to investors on a subscription model. In contrast, the traditional agencies only rate deals for which they were hired and paid by the issuers. Until now, Realpoint has had to rely on available IRP data and their own additional work to provide the ratings. With the new rules, they will be able to get the full issuer package — which includes data that is critically missing from the current IRP.

DBRS is another rating agency poised to gain from this ruling. They were left off most deals in 2006 and 2007 because they refused to rate deals as aggressively as the big three. In the future, they also will have rights to all the data and will be free to express opinions on all deals, not just the ones they were paid to rate.

Now, the question is, what about the data providers? We at CMBS.com provide IRP data feeds to DBRS to support their ratings and surveillance activities, and I know Trepp provides its data to Fitch. So, do the data providers also get the “full package?” If so, can we share that data directly with our CMBS investor clients?

These and other questions will be answered over the next several months, but the momentum is clearly moving toward more transparency. If all the rating agencies get all the data, how far behind will the investors themselves be from getting all the data? And if they get all the data (delivered in IRP 6 XML of course), then CMBS will truly become transparent.

The SEC ruling was a big first step in that direction.

— — —

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