Monday, June 23, 2008

The end of CMBS as we know (or knew) it for a while?

That's what this report states:

The are widespread fears that if rating agencies develop a separate category for structured securities it will further erode investor confidence in CMBS and RMBS and delay these markets’ return.
Apparently the SEC wants to bring some transparency to the market, which I think is a good thing. And if that means it takes a while for the conduit market to come back, then so be it. I was personally having little faith in some of the rating agencies' work on deals, especially when things were hot and heavy.

That being said, however, this could bode poorly (and improperly so, perhaps) for structured finance vis-a-vis other rated securities:

Separate ratings [according to Jan Sternin, and SVP at the MBA] would lead to the perception in the marketplace that corporates and munis have an even higher level of insulation against loss -- and that structured finance may be even more prone to loss. "It would render all AAAs not created equal," she says. It would also lead to an exodus of capital from structured securities as investors would assume corporates and munis are safer.
Maybe we're not ready for reform yet, but I'm glad we're at least considering these kinds of issues.