CREative accounting

16 April 2020 By Anna Szymanski Follow @Three_Guineas

Colony Capital’s CEO wants officials to loosen mark-to-market rules following ructions in a corner of the mortgage market. He has a point. Firms shouldn’t be forced to unload assets in fire sales. But the rules already give industry players wiggle room. They should use it.

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On April 9, the Fed said that eligible collateral for its Term Asset-Backed Securities Loan Facility would now include the AAA-rated tranches of outstanding commercial mortgage-backed securities.

The Financial Accounting Standards Board said on April 8 that Accounting Standards Codification 820 provides proper guidance for determining assets’ fair value. The Real Estate Roundtable sent a letter to various government organizations, including FASB, on March 30 requesting the suspension of mark-to-market accounting.

In March, some real estate investment trusts that invest in mortgages and mortgage-backed securities had to sell assets to meet margin calls from the financial institutions that provide them with funding. Spreads on securities backed by single-family homes and commercial properties widened to levels last experienced during the global financial crisis, according to International Financing Review.

On March 23, the Federal Open Market Committee said it would include purchases of agency commercial mortgage-backed securities in its efforts to support market functioning. Its first purchase of agency CMBS was on March 27.

On March 22, Colony Capital Chief Executive Thomas Barrack published an article on the website Medium saying addressing liquidity problems in the commercial mortgage market required a coordinated effort to forestall problems in the commercial real estate market, including regulatory changes.

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