CMBS risk retention rules may affect access to capital - first new bonds being sold
[{"id": "d6l9y4u", "text": "On top of the issues with CMBS loans in terms of borrower satisfaction, there is also the issue with new risk retention regulations and how it will affect the issuance of CMBS going forward. Depending on how the SEC treats the retained portion, it may drive more issuers out of the market.  \n\nDoes anyone have any thoughts or insights on how this affects the overall lending market? ", "replies": [{"id": "d6lzrgr", "text": "Very interesting reading, thank you for posting. \n\nThe article mentioned how the loans could be treated as either bonds or mortgage loans and the former would be financially damaging from an accounting perspective. Could you elaborate a little on that? \n\nHere's the direct quote:\n&gt; Retaining these securities threatens to reduce banks\u2019 profits because they have to fund any assets they hold. If the portion a bank retains is classified by banking regulators as bonds, they will have to use more capital to fund them, and the accounting treatment is worse.", "replies": [{"id": "d6mlu2e", "text": "I'm not an expert on bank capital requirements, but my nacent understanding is that if they are treated as bonds, then the bank has to hold more cash on its balance sheet in case the bonds go bad. Mortgages apparently have lower capital requirements than bonds, so the bank would have to hold less cash to offset their position.  \n\nRandom example to illustrate:  \nBank holds $1M in bonds. Capital requirement is 25%, bank must reserve (and not use/lend) on $250,000.  \nBank holds $1M in mortgages. Capital requirement is 5%, bank must reserve $50,000.  \n\nMake sense? ", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "d6o400i", "text": "The timing of this seems pretty poor. Feels like nobody really has a grasp on how exactly these new mandates will affect the market despite years of gradual adjustment - and we're about to embark on a few years of a historically high need for refinancings. I'm wondering if a lack of access to capital might cause some pain for property owners. ", "replies": [{"id": "d6o8fjf", "text": "it's going to be an interesting next 18 months!", "replies": [], "depth": 2}], "depth": 1}]