A New Mortgage-Backed Securities Crisis for Law Firms?

Dechert partner Rick Jones, chair of the firm’s finance and real estate groups.

Lawyers involved in commercial mortgage-backed securities deals are no stranger to tumult, and, since 2008, they’ve also had to adjust to increased regulation. But a new rule set to take effect Dec. 24 has some predicting new obstacles to a deal pipeline that still hasn’t fully recovered from the recession. In an article written by GlobeSt.com sister publication, ALM’s Law.com, one real estate finance lawyer at a top securitization firm predicted that “we will see some sort of a material disruption in the process of capital formation for commercial real estate.” The  new credit risk retention rule implemented under a multi-agency umbrella, requiring sponsors of CMBS deals to hold 5% of the risk associated with the deal, has brought together four law firm leaders in securitizations who typically are competing against each other for a piece of a shrinking CMBS pie. Cadwalader, Wickersham & Taft; Dechert; Sidley Austin; and Orrick, Herrington & Sutcliffe jointly issued a white paper this week that looks at questions raised by the new rule along with their proposed answers, the article says. The firms, some of which made significant cuts to their securitizations practices in 2008, came together in the hopes of unifying — and hopefully protecting — an industry that pays a lot of their bills. And, some of the lawyers said, a united front among competing firms could make an impression on regulators. The lawyers do differ on how much the risk retention rule will impact deal flow. But it is clear is there is a lot at stake for the firms that do this work. Dechert partner Rick Jones, chair of the firm’s finance and real estate groups, predicts a material deal stoppage after Labor Day as the industry figures out how to handle the regulations. “It will impact every player in the $800 billion commercial real estate securities market,” Jones said of the rule. “Since they don’t know how to retain risk, they don’t know how to price loans, so the impact goes directly to Main Street.” Click here to read the full article on the subject.