MBA, CMSA Recommend Regulatory Capital Relief For Certain Securities

The Mortgage Bankers Association (MBA) and Commercial Mortgage Securities Association (CMSA) have filed a comment letter with banking regulators to address the proposed risk-based capital treatment of assets coming on the books of banks on Jan. 1, 2010, as a result of FAS 166 and FAS 167.

FAS 166 and FAS 167, issued by the Financial Accounting Standards Board (FASB) in June, will generally require that assets and liabilities of prior private-label residential mortgage-backed securities and commercial mortgage-backed securities be put on the balance sheet of the issuer, servicer or special servicer for all deals prior to Jan. 1, 2010. These new guidelines will also apply to all deals commencing on or after that date.Â

In their letter, the MBA and CMSA recommend that the regulators grant regulatory capital relief if a security meets the following structure:

  • If the primary beneficiary is the transferor, the transfer meets all other criteria for sale accounting under FAS 166.
  • The beneficial interest holders of the variable interest entity (VIE) have no recourse to the general credit of the primary beneficiary other than standard representations and warranties.
  • The VIE's assets can be used only to settle the obligations of the VIE.
  • There are no explicit arrangements or implicit variable interests that could require the primary beneficiary to provide financial support (for example, liquidity arrangements and obligations to purchase assets) to the VIE, other than servicing advances, which are only required if the servicer deems them to be collectible.

‘While the International Accounting Standards Board hasn't yet issued its FAS 166- and 167-equivalent reporting standards, there are significant differences in approach between FASB's and the IASB's exposure drafts,’ says Dottie Cunningham, CEO with the CMSA. ‘This should serve as further reason to delay the regulatory capital impact of FAS 166 and FAS 167."

SOURCE: Mortgage Bankers Association


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