Commercial Mortgage Securities Association (CMSA), in a white paper issued today on the White House’s overall regulatory reform proposals, emphasized that the government’s financial recovery and reform efforts should maintain a consistent view towards addressing the unique challenges facing the $3.5 trillion commercial mortgage market. "CMSA continues to fully support policymaker efforts to help restore liquidity in the CMBS and broader commercial real estate market and, at the same time, hopes that any financial reform efforts put forth do not distract from getting credit flowing again for the broader market economy," said Patrick Sargent, President, CMSA. 

Particularly, the trade group’s white paper underscores several distinctions between CMBS and other asset-backed securities markets, both relative to the structure of the securities and the underlying collateral, as well as the type and sophistication of the borrowers themselves. The white paper also recommends that any Administration financial reform proposals should be customized to reflect some of these distinctions.

"The new and unprecedented financial regulatory reform proposal would undoubtedly change the nature of all securitized credit markets at the heart of the Financial Stability Plan," CMSA’s paper stated. "At a time when policymakers hope to restart the CMBS market, certain aspects of such proposal could have the opposite and unintended result of stalling recovery efforts by making lenders less willing or able to extend loans and investors less willing or able to buy CMBS bonds – two critical components to the flow of credit in the commercial market."

In the white paper, CMSA describes in detail the five specific issues it believes the Obama Administration should customize to reflect the unique nature of the commercial market.

The five issues of concern for CMSA are:

► Five percent retention by originators and sponsors 
► The elimination of the immediate recognition of “Gain on Sale” by originators for a securitization
► Ratings differentiation 
► ABS issuers to disclose loan-level data
► Prohibition on hedging of the retained risk portion

In summary, CMSA believes the Administration’s regulatory reform efforts are warranted and important, though the trade group believes there are some issues that may complicate the efforts to restart the securitized credit markets, which, paradoxically, is the very centerpiece of the Administration’s recovery efforts through TALF. It’s for these reasons that CMSA encourages policymakers to examine some distinctions within the commercial mortgage sector to ensure the broadest recovery possible.

For a copy of the CMSA White Paper, click here.