Risk Retention
Risk Retention: Proposed Changes & Where Lenders Go From Here (Pt. 3)
Last year, some government officials began to realize the fallout that the original structure of the Securitization Safe Harbor Rule (i. e. risk retention) would have on the commercial real estate market. Because of that, some representatives started to look for a way to soften the original regulations while still protecting the public. On March 2nd of 2016, the House Financial Service Committee proposed an amendment called the Access to CRE Capital Act (meant to ease some of the original restrictions) that is supposed to be put up for consideration in the House and Senate this year. Let’s take a look at how this bill could change the current structure. This bill aims to enable more...
How Risk Retention Affects Lenders, Borrowers, & Bond Investors (Pt. 2)
Since its inception, CMBS lending has been the go-to mortgage product for larger properties with sponsors that want non-recourse financing with high leverage, low interest rates, and lenient underwriting. However, since the market collapse in 2007 and the passage of the Dodd-Frank “Risk Retention”, things have changed. Although still more permissive than conventional or insurance products, CMBS underwriting standards have become more stringent, leverage points have been lowered, and interest rates can fluctuate greatly depending on treasury indexes and bond investor demands. Historically, one of the biggest benefits to being a CMBS lender is having the money that is loaned to the real e...
What is Risk Retention under Dodd-Frank? (Pt. 1)
Anyone who works in or around commercial real estate has probably heard the words “risk retention” at some point, however many people may not fully understand what it is or how it may affect them personally. In order to understand what risk retention is, we have to take a look at where this term actually comes from. After the market collapsed in 2007, a lot of people lost A LOT of money, including retirees that got completely wiped out from what they were supposed to be living on for the rest of their lives. Needless to say, people were very upset, and demanded that the government do something to protect them from anything like this ever happening again. That’s where the Dodd-Frank W...
