Would Loss of QSPEs Be 'Catastrophic'?

The loss of qualifying special-purpose entity status would have a potentially "catastrophic" impact on the commercial mortgage securitization business, according to Rick Jones, a lawyer with Dechert LLP, an international law firm.Moderating a panel session at the Commercial Mortgage Securities Association's annual convention in New York, Mr. Jones said that, if a vehicle is not considered a QSPE, the entities deemed to be primary beneficiaries of the securitization vehicle would have to consolidate the loans on their balance sheets. This could result in, say, $50 billion of assets and liabilities on their balance sheets that were not there before, Mr. Jones said. In this case, "why would they securitize if they didn't make money?" he asked. According to Mr. Jones, the accountants "don't understand these issues" and are on a "steep learning curve." Lee Cotton of ARCap REIT, a "B-piece" player, said an industry group is also working with the "powers that be" in Washington to persuade them that what the industry has been doing fits in with standards set by Statement No. 140 of the Financial Accounting Standards Board. According to Mr. Cotton, if B-piece buyers had to consolidate the loans, it would make their balance sheets "totally unreadable" and not helpful to investors. Dechert can be found online at http://www.dechert.com.