The public comments on the SEC re-proposed rules for issuing asset backed securities including CMBS, known as Reg AB II, were due this week. The SEC received comments from 23 different companies and trade groups, including one from me.
It’s the rent roll stupid
My two page response focused on CMBS data disclosure and the value of XML.
I repeated my refrain that the in place contractual rent information found on rent rolls is currently missing in CMBS reporting. I reminded the commission that the law per Dodd-Frank says in order to securitize an asset the issuer must disclose enough information for both the investors and rating agencies to value the underlying collateral.
In my opinion, current CMBS reporting and the Commission’s proposed schedule L and LD fall short of providing the data required to comply with this law. If rent rolls are added to both schedule L and LD (and a handful of other capital stack related fields), the required transparency will be achieved.
CREFC and MBA stay put
Both the CREFC and the MBA submitted responses, but they did not change their positions since their original submissions in August 2010.
The most recent CREFC submission was most disappointing. It still opposes XML based reporting and any additional mandatory disclosures.
The MBA was a bit better, but it basically stated the CREFC IRP is and should be the standard for CMBS reporting. However, the MBA was more positive in its support for XML and did say that, if the regulators require XML reporting, they should use voluntary consensus XML standards (i.e. MISMO). The Board of Governors of C-MISMO were vocal during the drafting process, and it was good to see the MBA’s final letter was supportive of XML and was a break from the CREFC position.
My prediction is the regulators will stand firm on requiring XML, but I have no idea on where they will come out on asset level disclosures. It does seem clear that without their mandate, the industry seems incapable of changing on its own. 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.