Tough Times for Lenders : Financial Services Lawyer & Attorney : Winstead Law Firm : Finance, Banking, Bankruptcy

Once again [link to earlier letter], in a letter dated March 25, 2010, the 21 key industry groups band together in an attempt to focus the Senate on the importance of the securitization market, and to caution the Senate on the proposed reforms relating to the securitization market. The players in this group represent an extremely broad segment of the US economy:

• American Bankers Association
• American Hotel & Lodging Association
• American Resort Development Association
• American Securitization Forum
• Associated General Contractors of America
• Building Owners and Managers Association International
• Certified Commercial Investment Member Institute (CCIM Institute)
• Commercial Real Estate Finance Council (formerly CMSA)
• Community Mortgage Banking Project
• Institute of Real Estate Management
• International Council of Shopping Centers
• Loan Syndications and Trading Association
• Mortgage Bankers Association
• NAIOP, Commercial Real Estate Development Association
• National Apartment Association
• National Association of Real Estate Investment Trusts
• National Association of Real Estate Investment Managers
• National Association of Home Builders
• National Multi Housing Council
• The Real Estate Roundtable
• Securities Industry and Financial Markets Association

The challenge is to keep the message, and the Senate’s focus, simple despite the expansive scope and length of the “Restoring American Financial Stability Act of 2010”  – yet financial reform is a topic that invites amendments. (Recall the 473 amendments made on the bill in the Senate Banking Committee.)

The letter [download] addresses the importance of the securitization market as a key source of liquidity for economic recovery. The message is very simple and pointed:

• credit markets are constrained despite enormous demand for credit and significant loan maturities – all in the face of declining values
• new accounting changes will limit balance sheet capacity and the overall amount of credit
•  the bill’s proposed “risk retention” terms will further limit balance sheet capacity and lending capacity

The letter states that “given the totality and far reaching implications of regulatory and accounting changes, there are serious concerns about the future viability of the securitization markets that are critical to borrower access to credit and an overall recovery.”

Perhaps because the letter is from a broad segment of the US economy, it does NOT address several important topics of importance to commercial real estate, such as -

• Covered bonds: note that on March 18, the House Financial Services Committee – Capital Markets Subcommittee (ranking members are Scott Garrett, R-NJ, Chairman Paul Kanjorski, D-PA, and Spencer Bachus, R-AL) introduced covered bond legislation. I’ll address this important bill in a future blog posting (For background on covered bonds: link)
• Rating agency reform: clearly this is a topic of key importance for securitizations involving commercial real estate (i.e., CMBS).

Regardless, it is good to see a broad spectrum of key industry groups join together is support of a specific, and focused, aspect of the reform legislation.  The collective strength will be needed.  It will be an up-hill battle.

If you have thoughts or comments, please post them below.

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As noted in my earlier posting on Fidelity's acquisition of Commonwealth Land Title and Lawyers Title, the American College of Mortgage Attorneys furnishes its members with information on title insurance and escrow issues relating to the bankrupcty of LandAmerica Financial Group.

Here is a portion of the most recent announcement from ACMA:

A. Title Insurance Issues:  Bankrupcty Order, State Order, Rating Agency

As the dust starts to settle regarding the bankruptcy sale of Commonwealth Land Title Insurance Company and Lawyers Title Insurance Company to the Fidelity family of title companies, we are able to provide the following information regarding the status of the sale, the rehabilitation proceedings of the acquired companies and the acquiring and acquired companies.

1. Bankruptcy Court Order (PDF) entered in the LandAmerica Chapter 11 approving the sale of the stock of the subsidiary title companies to Fidelity family companies.
2. Here are links to the Nebraska Department of Insurance press release and orders releasing acquired companies from rehabilitation upon closing of sale and the recapitalization contemplated under the purchase agreement (the proceeding is not yet dismissed, however) (one; two; and three)
3. Reported Downgrade of Fidelity by Ratings Agency (PDF).

B. Information Relating to Treatment of Exchange Funds and Responsibility for Decisions on Deposits

1. Private Letter Ruling (Word doc) addressing status of an exchange where release of funds from exchange company is delayed by state insolvency proceeding.

2. Decisions (PDF) involving allegations of bank or attorney responsibility for choices relating to exchange accommodator or depositor:

a. Campbell v. Bank of America, United States District Court for the District of Kansas; Case No. 04 4108. Although this decision focuses specifically on whether personal jurisdiction existed over the defendant bank in question, the court’s discussion of the substantive claims at issue in the case may nevertheless be of interest.

b. See also, Bazinet v. Kluge, 196 Misc.2d 231, 764 N.Y.S.2d 320, 2003 WL 21361746,(N.Y.Sup.2003), overruled on appeal by Bazinet v. Kluge, 2005 WL 22693 (N.Y. App. 1/6/05). The lower court in this case found a valid cause of action existed against a lawyer, who in acting as escrow agent, chose a small bank (which later failed) as the depository for a substantial escrow deposit. However, the appellate court subsequently overruled the trial court in this case finding the attorney could not be held accountable for consequences arising from the insolvency in this situation.

I hope this is helpful to you or others. 

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