CREFC, IRP and regulatory updates
CREFC is cautious but upbeat, the IRP Committee wants to skip IRP 6, and the Regulatory Committee is moving toward smart compromise.
At the Commercial Real Estate Finance Council (CREFC) winter conference in Miami, attendance was up at about 1,300 (compared with a peak of 1,600 in 2007) and the mood was definitely upbeat with most people being super busy.
The pros were making 2013 origination projections of about $65 billion, and January is already off to an awesome start with almost $9 billion of new CMBS pricing. While there was definitely some caution in the air because everyone knows how quickly things can change, most people felt positive about 2013, and it looks like we are off and running.
On the opening day of the conference, I attended both the IRP Committee and the Servicers’ Forum meetings. The IRP committee has been pushing through updates to increase transparency, and they are currently updating the IRP from version 5.1 to version 5.2. This change, which went into effect Jan. 31, adds a new report regarding loan resolutions and workouts.
The report outlines a good level of detail, but the problem is the report is only a “best practice” template, and the format is PDF, not data driven. They said they want to start planning IRP version 7 for a late 2013 release. I asked what happened to IRP version 6, which is XML based, and how do we jump straight from version 5.2 to 7? The response was basically the same: No one wants to go to XML, so IRP 6 is still on the shelf.
At the Servicers’ Forum, the big news was the CREFC proposing to charge a “licensing fee” to use the IRP format as the reporting standard for the deal. The idea is that since the IRP is a standard owned by CREFC, they want to charge each new securitization a fee to use that standard.
The fee amount was being discussed, but it will likely be in the magnitude of $50,000 per $1 billion of CMBS over 10 years ($5,000/year). If the market recovers to $100 billion in annual issuance, this would be a major funding source for the trade group. For the most part, everyone seemed OK with the concept because they believe revenue for CREFC is a good thing, and the fee was relatively modest.
I said my two cents about XML adoption then went on to say now that the IRP might be generating revenue, we should start investing in the IRP and making it the best it can be. A few people agreed but, for the most part, the response was still we are holding off on XML until the regulators decide.
Risk retention looks like it will be coming out with a 5% and 5-year retention requirement. So, in a $1 billion CMBS deal, to satisfy the retention requirement, the B Piece Buyer would have to buy up to $50 million and hold those securities un-leveraged for at least 5 years.
If that holds true and becomes the final rule, it would recommend a compromise of the two extreme positions which ranged from no retention to 5% retention for the life of the deal (typically 10 years). This first compromise makes it seem like regulation is reasonable, and that good things are coming.
As far as Regulation AB, which deals with disclosure issues, they do not expect a rule out until the summer for two reasons. First, they want to get risk retention settled before moving on and second, the vacancy at the top of the SEC will delay their ability to finalize the rules until that seat is filled.
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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.
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