Register for the annual CMSA convention
Pre-registration closes Monday, June 1. Rates increase on Tuesday, June 2. Keep reading for details.
Big Easy showed early seeds of transparency
The MBA Commercial/Multifamily Servicing and Technology Conference I just attended was much more about business issues that servicers face (covenant violations, defaults, foreclosures and a general lack of liquidity) than how technology can help solve those issues. While words like transparency and efficiency were sometimes used, the belief that technology is need to achieve these goals seemed lacking.
CMBS Leads is launched; now off to the Big Easy
CMBS Leads launched on Friday! It feels great to have the launch push behind us. Now we can focus on selling!
This week I’m headed to New Orleans for the MBA Commercial/Multifamily Servicing and Technology Conference. I am speaking on three panels:
1. MISMO® – Data Standards for the Brave New World of Transparency & Efficiency
2. Where can Investors get their data
3. The Future of Reporting
At the MISMO panel, we will announce our support of IRP 6 plus our own initiative to promote data standards. The other two panels should provide opportunity to debate how we use data to help solve the credit crisis. In last week’s pre-calls preparing for the panels, it was clear not everybody was on board with my views so, hopefully, the sessions will be entertaining.
We will also have a booth at the conference where we will be demoing Backshop, CMBS Leads, CMBS Investor, and our next tool: a MISMO-compliant XML reporting tool that takes feeds from servicing systems and allows primary servicers to report upstream in XML compliant format.
Stay tuned for the latest developments from the Big Easy.
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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 Update
I sit on the Commercial Mortgage Industry Standards and Maintenance Organization’s Commercial Board of Governors (C-MISMO BOG) and we have been active this month working on two things:
- Creating a MISMO action plan to make MISMO relevant and to help the CMSA get IRP 6 approved.
- Preparing for our panel session at the MBA Commercial/Multifamily Servicing and Technology Conference in New Orleans May 12–15.
On the MISMO front, it has been a very interesting month. Since the CMSA officially asked for industry comment on IRP 6, the MISMO BOG has been trying to finalize our strategy to best help promote the adoption of open and transparent commercial real estate standards. Also, most members of the BOG are participating in a MISMO panel on May 13th at the MBA’s Tech Conference in New Orleans. These two events have helped us focus our message and strategy.
The process of agreeing on our strategy, as a group, has required a bit of consensus building. Frankly, the process has been refreshing because I think the position we seem to be reaching is the right one, and I am feeling good about it. When we release the statement at C-MISMO (probably around the conference), I will post it here. Stay tuned.
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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.
Commercial MISMO Kicks Off New Workgroup for Rent Rolls and Operating Statements
I’ve been writing about this for a while; here is the official announcement, plus a way for you to join the MISMO Commercial Operating Statements and Rent Rolls listserv. Do it now!
CMSA IRP Committee Seeks Feedback on XML Standard
As released today by the CMSA:
Keep the $100 Billion. I think $20 million will do the trick
I just returned from the MBA’s annual Commercial Real Estate Finance (CREF) conference in San Diego. While we were there, the government announced $100 billion from the new bailout plan would be used to provide leverage to investors in AAA CMBS. Most people at the conference were excited. Personally, while I welcome government leadership on a host of issues, I disagree with this strategy.
Do we need to use taxpayer money to provide debt to boost the bond yield for investors in AAA CMBS? The bonds are already trading at 15% pay rates — how much more juice do these guys need!?!
A better idea
So, we came up with a better idea: Let’s take $20 million instead of $100 billion.
In San Diego we talked about the real issues, and the solutions required to fix them. I believe, along with others, investors would come back to CMBS and spreads would tighten if the investors had the information and tools to model the underlying real estate risk.
For sure, no one knows what lease rates and cap rates to use in this economy. But, if IRP 6 went live and full operating statements and rent rolls were included in the XML file, the data would be available to run a bottoms-up underwriting, and the debate could move to lease and cap rates instead of the black hole we have now. That would eventually bring in spreads and spur new lending because the risks would be understood.
Debating the merits of, and even complying with, IRP 6 was a main topic at the conference — particularly among the master servicers. Their official position seemed to be that they would comment on IRP 6, but they wanted infinite time to comply with the XML schema and new content.
They argued the asset class is dead and budgets are tight, so there isn’t enough money to make the changes required to comply with IRP 6. When pressed to quantify the expense of compliance, they gave estimates from $0 to $2 million per servicer. When asked if they would implement IRP 6 without delay if they were paid for it, most said that would make a difference.
Some simple math:
1. 10 master servicers x $2 million each = $20 million
2. For that, we get transparency into an asset class worth almost $1 trillion.
3. We arm investors with the data and tools to do the math and figure out the investments.
4. Bonds start trading, and the log jam is broken.
Think of it as an infrastructure project instead of money to boost an already generous yield. Oh, and by the way, since we would be investing in building a “pipeline” into the data, we will leave behind true reform and the transparency that will surely be the foundation of CMBS 2.0.
Don’t bring a knife to a gun fight
The XML transition has real costs, and the servicers will bear most of them. Some will say we don’t need the $20 million either because the way the PSAs read, if the IRP changes, the masters can be forced to comply.
But, if the government really wants to help the CMBS industry, and they are committed to write a check anyway, I suggest a $20 million investment in infrastructure to speed up transparency would yield far better and faster results than their current plan.
Trying to manipulate a several trillion market with $100 billion is like bringing a knife to a gun fight. Let the government provide the leadership and capital needed to disclose and reform CMBS data, but leave the economics of the bet squarely in the private sector.
Other Observations from MBA’s CREF Conference
 Happy Hour at the CMBS.com booth. |
MISMO and MERS – I spent several hours with the MISMO governance and the representative from MERS. There was clearly a frustration level with MISMO volunteers with how the transfer to MERS was conducted. But, it was driven by budgets and it was done with, so most of the time was focused on what next.
Most people agreed that origination standards would not be critical in 2009 because there would be so little origination. Rather, to get a “win” and gain credibility for MISMO, pushing for the adoption of IRP 6 (which is based on MISMO XML schema) was deemed a priority. As for MERS, they seem like nice people, and I think they could prove to be effective agents for progress. They definitely have a presence in commercial and could provide the numbering system for a “Universal Prospectus ID.”
What’s the true impact of MERS? It’s too early to tell.
People – While attendance was down, lots of key people attended the conference. The panels were timely and attracted the true leaders from the institutions they represented. I learned a bunch and had good and lively debate on several occasions.
Booth Duty – This is one of two conferences a year we actually put up a booth in an exhibit hall (the CMSA’s June New York conference is the other). Attendance was down about 50% from last year with significantly fewer exhibitors also. But, at times the floor was jamming and our new investor product was being well received. Booth duty is not glamorous, but it is fun to throw yourself and your product out there and do some old-fashioned selling. I enjoy it when you get a good crowd interested — and especially if you make a sale.
Weather – It sucked (although we need the rain so bad in California it was actually great weather).
Parties – Not great (no Eagles, Grateful Dead, or Steve Miller this year) but not bad at all, surprisingly enough. We found multiple parties around town that offered plenty of free drinks and food. Hey, what good is CMBS reform if you’re hungry and thirsty?!?
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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.
MERS takes over management of MISMO from the MBA
Today John Courson of the MBA held a conference call with the residential and commercial leadership of MISMO to let us know that MERS, Mortgage Electronic Registry System, has taken over management of MISMO (See news release below).
MERS was created by the industry (the MBA has an ownership stake in MERS) to facilitate the electronic exchange of mortgage rights in support of securitization. It is a registration system (think universal loan ID) so loan servicers can do their job when it comes to releasing liens or foreclosing on loans that had been securitized. MERS has had great success in the Residential MBS market, and their services seem just as applicable to the commercial side. To be honest, I have heard about them forever but, I am not an expert in loan servicing, so I’m not sure how widely they are used in Commercial (I will find out).
Is this a Big Deal? Could be.
If every CMBS loan had a universal ID, that would be a big deal. The main headache with the existing IRP data is making the relationships between the various reporting files (loan, bond, property). If we standardized the way we relate these things together, that is half the battle. IRP in XML is nice to say, but I know firsthand that the data is not there in the raw form to facilitate it. It can be figured out to be sure: Lots of people are doing it (me, Trepp, Intext), but it is a painful, manual, value-added process. If all loans had a universal numbering system so the basic relationships were electronically available, that would be ideal.
What about deals that have multiple loans and multiple properties?
In MISMO, a commercial deal is defined as having many Loans (first mortgage loan, second mortgage loan, even partnership liens) and many properties. Usually, systems from the residential side are focused on the loan level, not the deal level, so tracking multiple loans — with various liens and many pieces of collateral — within one deal is challenging. If MERS registration solves both the loan and deal relationships, that will be a Really Big Deal.
Even if a MERS registration only solved the relationship between loan and bond and property, it would still be a big deal. The majority of the 850 billion dollars in CMBS are first liens, so knowing my position in the capital stack is less important than if I’m in a lower position. So, even if MERS is only at the note level, and since I am usually in first position, it would still deliver substantial benefits by clarifying the relationship from loan to the property and bond files.
Is this a Big Deal? Could be. …
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News Release
CONTACT: Cheryl Crispen
(202) 557-2726
ccrispen@mortgagebankers.org
WASHINGTON, D.C. (February 4, 2009) The Mortgage Bankers Association (MBA) and MERSCORP® today announced the two organizations have entered into a management agreement under which MERSCORP will be responsible for managing the day to day operations of the Mortgage Industry Standards Maintenance Organization, Inc.® (MISMO). Under the management agreement, MBA retains full control of MISMO and will maintain a permanent seat on the MISMO Board of Directors.
“MBA is pleased to enter into this agreement with MERS signaling the next generation of MISMO,” said John A. Courson, president and CEO of MBA. “It has always been the intent for MBA to develop and nurture MISMO and then align with another entity to conduct day-to-day management of the company in a way that best serves the real estate finance industry. MERS, as an industry utility owned in part by MBA, provides an ideal infrastructure for MISMO and will ensure the user experience of current MISMO participants remains constant at its current high level. We are confident this agreement will result in the continued enhancement of data standards and transparency which are critical to the return of investor confidence and liquidity in our marketplace.”
“As the mortgage industry’s utility, MERS has always been a strong supporter of MISMO in the advancement of industry standards,” said R.K. Arnold, President & CEO of MERS. “We are pleased with the confidence that the MBA has shown in us by entrusting management of MISMO’s day-to-day operations to us on behalf of the real estate finance industry.
The management agreement is effective immediately. MISMO subscribers should contact Dan McLaughlin (danm@mersinc.org <mailto:danm@mersinc.org>) or Gary Vandeventer (garyv@mersinc.org <mailto:garyv@mersinc.org>) at MERS, (800) 646-6377, for assistance with any MISMO matter.</mailto:garyv@mersinc.org></mailto:danm@mersinc.org>
###
The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 370,000 people in virtually every community in the country. Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation’s residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. Its membership of over 2,400 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance companies and others in the mortgage lending field. For additional information, visit MBA’s Web site: www.mortgagebankers.org .
MERS is a utility launched by the mortgage banking industry to eliminate paper from the mortgage life cycle. MERS facilitates the electronic exchange of mortgage rights and supports the transition to electronic mortgages. It currently has more than 3,800 members.
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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.
CMSA Investor Conference: Parting thoughts
This year’s CMSA conference was a lot less depressing than I expected. Not because there’s any sense that the market is going to recover in 2009 — everyone is predicting next to zero lending — but because of these three facts:
1) The people who still attend these conferences are survivors at firms that are committed to the space, and few of them think 2009 could be any worse than 2008.
2) Several potential new investors attended. They were “kicking the tires” to find value in the bonds.
3) The parties — at venues like the Shore Club and the Delano — were surprisingly nice.
Not to say it was a big party. Two reminders of the carnage: the attendance numbers were way off, and people were walking around looking for work.
| The List
1. Simpler capital structures. |
A real sense of urgency
The hot topic of conversation was the investor forum, which turned out to be a long scolding about the problems the industry has with getting data through the system. The leadership looked at the “the list” and contemplated a formal response. Conversations were started with the servicers, and I heard several creative ideas that could provide solutions for the investors.
But I also had more than one conversation with experienced and smart people who think “it (real reform) is never going to happen.” Maybe they are too jaded from trying for so many years with very little success. Or maybe they are right.
The Year of Change
While change is hard, and there’s no guarantee of success, I am optimistic. The challenges are not insurmountable and, for the first time, probably ever, there is a real impetus to make improvements.
After all, this is the Year of Change. Yes we can!
My wife and I are headed to Washington next week for the inauguration — to witness history and get inspired for the year ahead. I was invited by the MBA, so I hope to get good access. I will post updates from history next week.
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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.
Notes from the CMSA Investor Conference: Investor Forum
The much anticipated investor forum was a bit disappointing.
I agreed with almost everything they said, and I liked the fact that it was delivered with a bit of an angry edge. The problem was that the laundry list lasted the entire session, and they left no time for questions, discussion and comments.
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