Author: Sorohan, Michael; Murray, Michael; Kemp, Carolyn
Date published: April 1, 2010
The Federal Deposit Insurance Corporation board approved extension of safe-harbor treatment for securitizations that allow investors to keep assets off of their bal ance sheets.
The FDICs extension of the Safe Harbor Protection for Treatment by the FDIC as Conservator or Receiver of Financial Assets Transferred by an Insured Depository Institution in Connection with a Securitization or Participation permanently "grandfathers" in a safe harbor for all securitizations or participations in process through Sept. 30, 2010, that complied with a pre-existing section of generally accepted accounting principles (GAAP) before Nov. 15, 2009.
On June 12, 2009, the Financial Accounting Standards Board (FASB) finalized changes to GAAP through Statement of Financial Accounting Standards (SFAS) No. 166, Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140 known as FAS 166. FASB also changed Statement of Financial Accounting Standards No. 167, or FAS 167, Amendments to FASB Interpretation No. 46.
However, the FDIC said FASB's implementation of new accounting rules, FAS 166 and FAS 167, created "uncertainty for securitization participants."
The FDICs final rule confirmed that section 360.6, the Securitization Rule, will continue to protect participations in the securitization market.
Since its adoption in 2000, securitization participants, including ratings agencies, relied on the Securitization Rule as assurance that investors could look to securitized financial assets for payment without concern that the FDIC, as conservator or receiver, would interfere with those assets.
The rule favored "insured depository institutions" that allowed CMBS originators to transfer loans off their balance sheets and into the capital markets, packaged as CMBS pools. As a result of off-balance GAAP for banks, they were able to increase liquidity in the commercial mortgage market.
The CMBS market is beginning to show signs of thawing alter a nearly 18-month freeze.
"MBA commends the FDIC board approval to extend the safe-harbor protection for treatment by the FDIC as conservator or receiver of financial assets transferred by an insured depository institution in connection with a securitization or participation," said Dave Roberts, CMB, president and chief operating officer at Grandbridge Real Estate Capital, Charlotte, North Carolina, and chair of MBA's Commercial Real Estate/Multifamily Finance Board of Governors (COMBOG). "We appreciate the FDICs objective to increase investor confidence in a manner that balances its safety-and-soundness considerations with the market's need for stability and recovery. Prudent securitization practices can play a vital role in a robust and sustained economic recovery by increasing the availability and alfordability of credit."