The FASB met last Wednesday to discuss FASB staff guidance (which was presented in a question and answer form) that responds to industry questions on whether activities of a servicer in CMBS transactions fall under the actions of a qualified special entity (QSPE).
There were eight questions presented by the staff. Industry participants were disappointed with some of the results, particularly on FASB's response relating to the servicer's use of the net present value calculations in CMBS.
"The decision is apparently intended to advance the accounting policy goals underlying FAS 140," said George Miller of the Bond Market Association, "applying professional judgment to determine which of several potential asset disposition paths maximizes bondholder recoveries, based on the results of a net present value analysis, should not in our view be regarded as the exercise of discretion' that risks transforming a QSPE into an operating business. At a practical level, I think the outcome will be adverse to investors and to the efficiency of the commercial real estate financing and capital markets. That really is unfortunate."
The FASB is set to release a full set of Q&A for the review of industry participants. The provisions laid out by the guidance will only affect transactions that occur after the publication of the final Q&A.