Commercial Mortgage Securities Association (CMSA) has urged the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB) to temporarily suspend or amend the Fair Value Accounting (FVA) standard.
In a letter to SEC Chairman Christopher Cox and FASB Chairman Robert Herz, CMSA states that its members have experienced and observed first-hand the difficulty that arises when assets must be valued on a FVA basis when there is virtually no active market trading.
‘In the particular case of the commercial mortgage-backed securities industry, the fundamentals of CMBS are strong,’ states Dottie Cunningham, CEO of CMSA. ‘In contrast with the residential market and construction lending components of commercial real estate, CMBS delinquencies are at historic lows – still less than one-half of one percent. Vacancy rates are lower now than during past economic downturns, and the vast majority of these mortgages are performing.’
Cunningham notes that CMBS investors are required to use FVA in an environment where illiquidity – caused by the contagion effect from the subprime market – has pushed buy-bid rates to an artificial low, resulting in a devaluation of assets.
CMSA believes that this pricing presents an inaccurate reflection of the asset's performance and its underlying fundamentals and that the reporting of artificial ‘losses’ on well-performing assets drains investors' capital resources, thus exacerbating the illiquidity problem.
Source: CMSA
