The CRE Finance Council said today that overall the final Financial Reform Bill included provisions intended to address the unique nature of commercial real estate finance and to promote a coordinated regulatory approach.
However, it also imposes a number of new mandates on "securitizers," as well as other CMBS market participants.
For the commercial real estate finance market, the new law includes a risk retention mandate, a study on retention and new accounting rules (FAS 166 and 167), and credit rating agency reform, as well as other securitization reforms, new disclosure requirements and other provisions of interest.
U.S. financial regulators must now consider dozens of new studies and hundreds of new rules required to implement the wide-reaching new law, such as a 90-day study from the Federal Reserve on the combined impact of new regulatory and accounting reforms on the market.
"The CRE Finance Council recognizes the importance of many facets of the recent reform measures, but it is critical that financial regulators carefully coordinate and customize rules to provide much needed certainty and confidence," said Lisa Pendergast, president of the council and managing director in strategy and risk at Jefferies & Co. "Despite significant improvements in the final bill that was presented to President Obama for his signature today, there remains tremendous uncertainty and concerns about the combined impact of new mandates on credit availability at this crucial time."
The nascent revival of the commercial real estate sector and, by extension, the improving health of CMBS might be truncated as a result of the severe reaction the ratings agencies announced today.
According to a Wall Street Journal report published this morning, rating agencies are looking to scale back ratings on structured finance transactions until they get more clarity on what their legal exposures could be. The move would effectively shut down new public issuance across all asset classes.
"I find it very ironic that the very regulation that they are signing could have the un-intended consequence of shutting down any resemblance of a new issue/securitization market," said Jesse Litvak , a mortgage trader at Jeffries. "D.C. has done a wonderful job in getting liquidity back into the system, and getting things to stabilize from the 2008/2009 carnage but this one is a biggie, and needs to be dealt with."