WASHINGTON, DC-The CRE Finance Council has presented the Washington established--from Treasury secretary Timothy Geithner to FDIC chairperson Sheila Bair--with a roadmap for formulating the commercial mortgage-backed securities underwriting standards required under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
More than six months in the making, the association called upon some 50 member firms to contribute to the mammoth effort. It is important that the CRE Finance Council take the lead on this, said one participant at the Council’s ongoing conference in Washington, DC this week. “We represent the voice of the commercial mortgage and finance industry and it is important that Washington understands what is necessary to have in place for a robust market.” These proposed guidelines are also important because they are ready to be implemented, the conference speaker also said.
As described by conference participants, the package sent to Washington includes an updated “Annex A”--that is, a disclosure package for investors. The updated annex reflects possible revisions the Securities and Exchange Commission may make to its Regulation AB. The changes include additional information about the underlying loans.
There were myriad goals when developing these documents. For starters, Dodd-Frank requires regulators to develop underwriting standards that specify terms, conditions and characteristics of a loan that provide an accurate picture of that loan’s risk. At the same time, a homogonous approach to such rulemaking is not well suited for CMBS. The upshot was the development of a principles-based underwriting framework to generate the underwriting of lower credit risk CMBS loans.
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