This is a short follow-up of Wednesday's post on The Emerging Trends in Real Estate - Capital Flows. In particular it is more on the needs and concerns of restructuring the mortgage backed securities market, particularly in light of Washington's participation. It promises to be a slow go.
There was unanimous agreement amongst the almost 900 respondents to the Urban Land Institute’s Emerging Trends in Real Estate 2010 survey that the capital generated by commercial mortgage backed securities is essential for the industry’s recovery. And, before financing can regain a substantial foothold for commercial real estate, a monumental remodeling will have to effected on the CMBS market ... (it bears repeating)
The next big fix will be the commercial mortgage backed securities. Assuming a recovery of the financial sector, the real estate industry will have to figure out what to do with the collapsed CMBS market, “a classic example of a good idea gone horribly wrong.”
Unenviable Task for the American Securitization Forum
Last week the American Securitization Forum, for issuers, bankers, lawyers and investors involved in creating and buying asset-backed securities, met to tackle the unenviable task of cleaning up and reviving the market for MBS, both residential and commercial.
ASF Chairman Daloisio’s opening words, to a subdued group, were an understatement. "Never before has the future of securitization depended so greatly on the decisions which will be made this year in Washington.”
Members of the ASF fear that Congress, the FDIC and other regulators will impose such harsh restrictions on securitization that they will prevent it from regaining its role as a major provider of credit to to the U.S. real estate markets.
Michael Barr, assistant secretary of the U.S. Treasury, said that securitization is an "essential vehicle for providing credit to consumers and firms.” But he said legislative reforms, currently moving slowly through Congress, are needed before private securitization can return in a meaningful way. "We cannot rebuild the securitization markets on the old infrastructure," Mr. Barr said.
The Obama administration wants better disclosures on the assets backing the securities and provisions that require issuers to keep "skin in the game," or retention of some of the default risk.
No hope was offered for speedy action from Washington.
Before the private mortgage securities market can recover, issuers and investors need clarity about the regulations they will face. A bottom in real estate prices for both residential and commercial markets is also necessary for a resurgence.
This year's Forum convened in a Washington suburb instead of the glitzy Las Vegas location of years past. With the focus on regulation, they wanted easy access to the policy makers. Ironically, the meeting convention center choice for this year contained no casinos.
What a difference a few years make. Three years ago, the headline speaker was Jay Leno: this year Howard Dean and Newt Gingrich were introduced as “the entertainment.”
As concluded in Emerging Trends, “it will take years to unravel the current CMBS debacle and restructure a palatable new securitization model.”About the American Securititization Forum from their website:
- The ASF advocates the securitization industry’s interests in various market practice, legal, accounting, tax, regulatory, legislative and policy issues.
- The ASF builds consensus, coordinates advocacy efforts, and informs and educates the securitization community and related constituencies on issues of broad importance to the industry.