FDIC’s Plan to Securitize Assets Could Boost CMBS

WASHINGTON, DC-The Federal Deposit Insurance Corp.’s primary objective
or mission statement, it is safe to say, is not to give a boost to the
still lackluster capital markets. But that is what it is going to
accomplish when it goes to market, as it reportedly will do by the end
of January 2011, with a $500-million CMBS.

The Wall Street Journal reported on the agency’s plans, which have been long rumored and
now are generally accepted as a fact. The FDIC will securitize two portfolios of performing loans in the
fourth quarter--one will include commercial real estate loans and the
other will include residential loans, Tom Galli, a Washington,
DC-based attorney with Greenberg Traurig, tells GlobeSt.com.

It is doing it for the obvious reason: to maximize proceeds from its
sale of performing loans, Galli says. “By selling performing loans
through securitizations, the FDIC will realize a larger price for the loans than it would from putting
 them through structured transactions for at least two reasons,” Galli says. One, the buyer/bidder population for securitizations is larger than
that of the structured transactions space. And two, when performing loans are combined with non-performing loans in
structured transactions, bidders automatically apply a discount to the
performing loans.

A secondary objective of the FDIC, Galli adds, would be the
shot-in-the-arm to the CMBS market. “Just because it isn’t part of
the FDIC’s mission statement doesn’t mean it is uninterested in the
progress of the capital markets,” he says.

“My prediction is that they'll have no trouble selling the
securities,” says Scott Tross, a partner at Herrick, Feinstein. “There
are more factors arguing that buyers would welcome such sales of CMBS
than arguing against,” he tells GlobeSt.com. “There's no question
that there's a demand for this kind of product that has not been satisfied
for an extended period of time; plus plenty of cash on the sidelines
waiting to be deployed,” Tross explains.

He says the likeliest prospective buyers are
the same people who traditionally buy CMBS--pension funds, insurance
companies, mutual funds, institutions and wealthy individual
investors. “This is a better time to be a buyer than two or three
years ago, when the market was on the verge of cratering,” Tross notes.

Another indirect affect of the FDIC’s decision will be the type of
assets that will be included in its structured sales program, Galli
says. “We can expect to see higher concentrations of non-performing loans in
the FDIC structured transactions going forward.”