Firms Withdraw from Commercial Mortgage Conduit Business in the Face of Growing Pressures

According to a recent article in the Wall Street Journal, a number of investment firms are turning away from the practice of stockpiling commercial mortgages to later be turned into commercial mortgage backed securities (CMBS). One of the primary issues facing industry participants are new risk retention rules, set to go into effect in December. Once in place, these rules will require, in certain circumstances, any issuer of CMBS to retain a portion of the credit risk on the loans underlying the security. For firms operating as commercial mortgage conduits, this will likely result in increased costs and smaller margins.

Given these challenges, some have already withdrawn from the market. According to the Wall Street Journal, at least three firms have already walked away from the conduit business. Those that remain are made up primarily of major global banks, active in the CMBS market.

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