Fun With GAAP: CMBS At Risk

Here's a headline for you: We don't know if a conventional CMBS securitization where risk retention bonds are retained by a B-buyer under an industry standard third party purchaser agreement achieves accounting sale treatment. Failure of accounting sale treatment means the selling bank cannot book the gain and does not derecognize the underlying loans resulting in the entire portfolio of loans remaining on its balance sheet for both Generally Accepted Accounting Principles, or GAAP, and presumably, for risk based capital purposes.

As might have been said by that great philosopher of the 20th Century: "You cannot possibly be serious!"

Commercial Mortgage Alert broke the story on Friday, August 11th and so I'm finally going to talk about the issue. I've been itching to do so since early June when I became aware of the problem but it really didn't seem there was a lot of upside for a broad industry discussion of the problem back then while the auditors and the