Latest Treasury Plan Targets CMBS Originators

WASHINGTON, DC-The Treasury Department is getting set to reveal new rules of the road for the securitization markets, which have been dormant for much of the past year. Primarily, according to leaked documents that have made their way into the public, the Treasury Department seeks to have originators keep some skin in the game–that is, have them retain some of the risks to the loans. Specifically, they will have to keep 5% of the credit risk that is sold off to investors.

Other requirements include more disclosure for issuers as well as restrictions against originators hedging against their credit risk.

The news is expected to be released Wednesday by Treasury. Not surprisingly Treasury is declining to confirm details of the plan–indeed, if this latest endeavor will be par for the course, many details will be missing from the first announcement.

Unlike its previous economic and credit market initiatives though–namely TALF, PPIP–there is broad consensus behind the broad brush strokes of the plan, at least as they have been revealed thus far. It has been a given that any sort of new CMBS market would require more from originators.

This plan, though, will be just one piece in a complex machinery that Treasury has been constructing with an eye to revitalizing our credit markets. One piece–requests for loans to buy new CMBS in TALF–is still a work in progress, with advances coming in fits and starts. On Tuesday, the Federal Reserve announced it didn’t receive any requests to buy new CMBS. At the end of July, the Fed will start accepting requests for loans to purchase vintage CMBS. The Fed, of course, is aware of the anemic uptake of TALF loans so far. In a speech earlier this month New York Fed President William Dudley predicted there wouldn’t be much activity because the CMBS market “takes quite a while to ramp up.”