I helped draft letters from CREFC, MBA and MISMO to the SEC commenting on the proposed Regulation AB changes. The letters were filed Aug. 2. While all of them supported the concept of transparency, none of them proposed a data list to actually achieve transparency.
So I also wrote my own letter.
CMBS.com letter: “It’s the rent roll, stupid!”
In order to make my letter stand out among the hundreds (thousands?) the SEC probably received, I was tempted to name my SEC submission: “It’s the Rent Roll, Stupid.”
I was thinking it might not be offensive but rather draw comparisons to the famous James Carville line from the 1992 presidential campaign: “It’s the economy, stupid.” By using the word “stupid,” Carville drew attention to what turned out to be the key issue of that election — the economy — and Bill Clinton rode that issue to victory.
For CMBS transparency, the key missing data element is the rent roll. Victory would be the SEC enforcing rent roll disclosure. Hence “It’s the rent roll, stupid.” But I chickened out and tried to make the content of the letter stand on its own.
The letter came out to just over two pages and only addressed data disclosures and XML. I stated the lack of rent roll disclosure for all tenants is the single biggest gap in current CMBS reporting, and it’s the most important new data disclosure the SEC should require.
I conclude that CMBS transparency will be achieved when full rent rolls are disclosed, the IRP is converted to XML and the missing fields per Schedule L and LD are added.
I have no idea how many comment letters the SEC actually received, or if my letter stood out enough to be read, but I’ll post here if I hear any response.
Here is a brief summary of the other three industry letters I worked on: MBA, CREFC and MISMO.
MBA letter backs XML!
The MBA letter (18 pages plus exhibits) was a victory for XML.
As far as disclosure, the MBA took the position that the IRP should be the vehicle for CMBS investor reporting and, if changes/additions are needed, they should go through the IRP process.
However, the MBA went much further than CREFC in its support of XML. The final letter said: “The MBA supports the use of XML as the regulatory reporting format to enhance the utility and transparency of data provided to investors in asset-backed securities. The MBA understands the value of XML reporting and is in favor of XML adoption.”
I was actually co-chair of the group that drafted the XML language and I am happy to report we got full XML support from the MBA. The only change they proposed was timing for implementation (two-year implementation versus one-year). That was more than I expected and way better than the CREFC response.
CREFC letter backs nothing
The CREFC letter was 29 pages long plus exhibits and focused on a lot more than just data disclosures and XML (it also addressed risk retention, private deal disclosures, waterfall program and other shelf eligibility proposals).
On the key issue of transparency, the letter basically said the existing disclosures are transparent and the reporting should move to XML only when the industry is ready and needs it (no time commitment). The letter was against all of the other SEC proposals. The letter did conclude by stating that there was not 100 percent acceptance within the trade group with all the “no change needed” positions.
MISMO letter backs MISMO
The MISMO letter was very strong on the value of XML standards but neutral on the appropriate data elements required for transparency.
MISMO was not just in favor of XML: They were in favor of MISMO XML.
Their argument was the SEC should use existing industry standards where possible (they provided legislative text to back up that position) and, therefore, should adopt the MISMO standards for investor reporting.
MISMO has a huge presence in residential securitization standards (RMBS) so, from that point of view, the letter was convincing. This was noticeably different than the MBA because the MBA letter endorsed the IRP — not MISMO — as the preferred standard for CMBS.
I assume the MBA letter for residential (which I have not seen) endorsed MISMO, but this is an interesting twist.
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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.