Industry News

Title: The Capital Consortium Issues Statement on FASB Servicer Discretion Review
Source:   The Capital Consortium
Date: 6/19/2006

New York (June 19, 2006) ─ The Financial Accounting Standards Board (FASB) continues to contemplate the best approach to respond to practice issues which arise in application of FAS 140, including how to provide guidance on servicer discretion. The Capital Consortium has been working cooperatively with the FASB to provide practical information on how the industry is operating in accordance with the established accounting standards created by the FASB as they relate to servicing.

A change in the servicer discretion interpretation that could result in commercial mortgage-backed securities (CMBS) trusts no longer qualifying for QSPE (Qualified Special Purpose Entity) status under FAS 140 would be onerous and disrupt the $709 billion U.S. CMBS market — the second largest source of commercial and multifamily real estate credit in the United States, now comprising nearly 26 percent of the $2.7 trillion U.S. commercial real estate debt market. In 2005 alone, CMBS provided more than $160 billion in debt capital to the commercial real estate industry, providing 30 to 40 percent of the total annual debt financing to commercial real estate borrowers.

Representatives from the Capital Consortium were chosen to participate by FASB in a resource group on this issue.  The representatives submitted technical documents to the FASB for its consideration that described servicing activities for specific securitization asset classes. These include not only CMBS, but also securities backed by home equity lines of credit, student loans, credit cards and residential mortgages. 

The industry previously addressed similar questions five years ago; and, at that time, additional guidelines were put forth by FASB in July 2001 to assist the industry and its auditors in defining permitted activities of a QSPE. The industry has worked within those guidelines since then.

It is clear to the Capital Consortium that the loss of QSPE treatment could result in disruption to the capital markets and the overall economy. QSPEs are widely used and well accepted transaction structures that are recognized under FAS 140, and servicing of financial assets is specifically contemplated under that standard. The industry is working to maintain market stability by educating regulators and those involved in setting accounting standards on CMBS process and practices.

The Capital Consortium is a group of five trade associations – the American Securitization Forum (ASF), the Commercial Mortgage Securities Association (CMSA), the Mortgage Bankers Association (MBA), the National Association of Realtors (NAR), and The Real Estate Roundtable (RER) - dedicated to ensuring and enhancing the availability of capital for commercial real estate finance.

Vera Carley

Angela Waugaman