COMMERCIAL MORTGAGE-BACKED SECURITIES 2013

Transcription

1 COMMERCIAL MORTGAGE-BACKED SECURITIES 2013 JONATHAN THALHEIMER McGuire, Craddock & Strother, P.C N. Harwood, Suite 1800 Dallas, Texas State Bar of Texas 7 th ANNUAL ADVANCED REAL ESTATE STRATEGIES COURSE December 5-6, 2013 Fredericksburg CHAPTER 4.2

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3 Commercial Mortgage-Backed Securities 2013 Chapter 4.2 TABLE OF CONTENTS I. INTRODUCTION A. Goal II. CONDUIT LOAN... 1 A. Securitization B. A Brief History of Conduit Mortgage Lending GSE's Role The RTC's Role Volume over Thirteen Years III. PARTICIPANTS IN A SECURITIZATION AND SELECTED TERMS A. Real Estate Mortgage Investment Conduits ( REMICs ) REMIC Requirements a. Conduit Mortgage Lending is a product of the REMIC rules b. Substantially all of the Assets are Qualified Mortgages or Permitted Investments c. Qualified Mortgage d. Principally Secured by an Interest in Real Property B. Borrower C. Mortgage Broker / Mortgage Banker / Correspondent D. Originator/Lender E. Producers... 2 F. Underwriters G. Closers... 2 H. Accumulator/Issuer/Depositor I. Pool J. Rating Agency, also referred to as Nationally Recognized Statistical Rating Organization (NRSRO) Review and Analysis K. Tranche L. Investors/Certificate Holders The Bond Purchasers a. Investment Grade b. Below Investment Grade or B Piece Investors c. The Waterfall M. The Pooling and Servicing Agreement ( P.S.A. ) Operative Document Governing the Rights and Obligations of the Various Parties to the REMIC Trust Finding the P.S.A N. Servicer Entities Administering the Loans a. Master Servicer b. Special Servicer c. Sub-Servicer O. Trustee... 5 P. Senior Trust Advisor Q. Mortgage Loan Purchase Agreement ( MLPA ) Operative Document for Sale of Loan Originator Responsible for Due Diligence Representations and Warranties, Repurchase Obligation R. Controlling Class Representative/ Subordinate Control Period/Collective Consultation Period S. Operating Advisor/ Collective Consultation Period/ Senior Control Period IV. ADVANTAGES AND DISADVANTAGES OF CONDUIT MORTGAGE LENDING i

4 Commercial Mortgage-Backed Securities 2013 Chapter 4.2 A. Conduit Loans Advantages of Conduit Lending a. Greater Access to Capital b. Frees Up Balance Sheet c. Facilitates Flow of Capital d. Standardization e. Accommodates Different Investor Risk Tolerances f. Brings Greater Liquidity to the Market... 6 g. Nationally Competitive Commercial Quotes h. Non-recourse i. Market Discipline. The financial markets have helped to impose discipline on the local real estate markets Disadvantages of Conduit Lending a. More Susceptible to Vagaries of Unrelated Capital Markets... 7 b. Inflexibility c. Additional Costs d. Unfamiliar Servicer e. Approval Levels f. Strict Reserve Requirements g. More Difficult to Deal with Unforeseen Property Development h. Increased Costs to Sell Property i. Locked Into the Loan For a Long Period V. BORROWER REQUESTS OCCURRING AFTER SECURITIZATION A. Factors Weighed in Servicing Request Representative Servicing Provisions B. Parties Involved in Servicing Request C. Effect of Interplay of Factors and Parties D. General Servicing Standards E. REMIC Rules - Some Concepts That May Assist in Determining Whether a Modification or Waiver will be Allowed Substantially All of the Assets of the REMIC Trust Consists of Qualified Mortgages Qualified Mortgage - Relevance in Modification and Waiver Modification of Mortgage may be so significant that a Qualified Mortgage is transformed into a Non-Qualified Mortgage Effect of Deemed Exchange on Qualified Mortgage De Minimus Non-Qualified Mortgages Importance of Compliance with Loan Documentation F. Example of the Steps a Servicer Might Take in Reviewing a Request to Allow a Further Encumbrance in Violation of the Loan Documents Due on Sale or Encumbrance Clause Request for Further Encumbrance New Chiller Example Prudent Lender Satisfaction of REMIC Rules Satisfaction of Specific P.S.A. Provisions a. The Special Servicer Must Approve b. The Rating Agency Must Approve c. The Certificate Holder Must Approve VI ISSUES A. CMBS Market Heating Up/Or Not Market Continuing to Grow Causes One of the Effects of Heated Market is Loosening Underwriting Standards Indication of Loosening Underwriting Standards ii

5 Commercial Mortgage-Backed Securities 2013 Chapter 4.2 B. CMBS Cooling Down/ Or Not Market feels Volatile Bernanke Speaks Indicators of Slowing Market/Spike in Bond Spreads C. Non-Recourse Carveouts Mean What They Say Borrower continues to be liable for Bad Boy Provisions Provisions will be enforced Full Recourse - Non-Recourse/Cherryland Dilemma caused by Statutory versus Contractual Obligations - Lichtenstein v. Willkie Farr a. Lichtenstein v. Willkie Farr Competing Currents Affecting the Negotiation of Non-Recourse Carveouts D. Dodd-Frank Wall Street Reform and Consumer Protection Act Rules Required Rules Finalized E. Dodd-Frank - Rating Agencies Functioning CMBS Market Requires Rating of Bonds The SEC Report looked at a number of different models such as: a. Issuer-Pay Model b. Investor/Subscriber-Pay Model c. Issuer and Investor-Pays Model d. Alternative User Pay Model Further Study Required F. Dodd Frank - Risk Retention % Rule Skin in the Game Rules Proposed Rules Extensive Comments/ Premium Capture Cash Reserve Account Success Requires Satisfaction of Multiple Constituencies G. Risk-Based Capital Requirements for U.S. Banks Final Rules Promulgated on July 2, Risk Retention Rules may cause headwind for CMBS H. Delinquencies Decreasing Substantial amount of loans maturing VII. CONCLUSION EXHIBIT A iii

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