February 12, 2010
Commercial Mortgage ALERT
Several dealers have started preliminary discussions with the FDIC about its plans to securitize commercial mortgages assumed from failed banks.
The talks are aimed at helping the agency understand the nuts and bolts of commercial MBS underwriting, according to market players. Firms that have participated in the discussions include Bank of America, Deutsche Bank, J.P. Morgan and RBS. When it is ready to proceed, the FDIC presumably will issue a formal request for proposals for dealers interested in underwriting
The FDIC hasn’t said officially that it will use securitization as an exit strategy for some of the commercial real estate it has inherited, but market players think some transactions are likely to result. A spokesman said the agency “is actively reviewing the role that securitization may play in the future, but there have been no decisions made on the structure, timing or size of any securitization transactions.”
The spokesman indicated that the agency will weigh on a case-by-case basis whether it will get a better return by securitizing or selling loans. The FDIC often retains a stake when it sells loans en masse.
Regulators seized 140 banks last year, and the FDIC expects the total to be higher this year. Commercial real estate assets make up 10% of bank assets on average. The spokesman was unable to provide a total for agency-held commercial real estate assets, which represent about 10% of the average bank’s assets.
In the early 1990s, the FDIC and a sister agency, Resolution Trust Corp., relied heavily on securitization to dispose of commercial real estate seized from banks and thrifts.