Zero Hedge

After the CMSA, through the valiant efforts of one Chris Hoeffel, Managing Director at InvestCorp, got what it wanted in the TALF extension for CMBX from 3 to 5 years, but subsequently realized it is insufficient to package all existing loans and lower rated securities, it is now focusing on other, much more relevant aspects of the ongoing crunch in Commercial Real Estate (but don't think they are done with TALF, only a matter of time before the push for the new version is rekindled, see below). Their most recent concern: General Growth Properties and the troubling development of Bankruptcy Remote Entities potentially suffering substantive consolidation, a topic whose dramatic implications Zero Hedge has discussed previously.

The CMSA has apparently read Zero Hedge and is now sweating which buttons to push and reverse the course that GGP has taken, which as I speculated, could be very adverse not just for the bankrupt mall REIT but for the entire industry. Here is a press release the Commercial Mortgage Securities Association has issued:

CMSA Files Amicus Brief on General Growth Properties Bankruptcy

CMSA and the Mortgage Bankers Association on May 1, 2009 filed an amicus brief with the U.S. Bankruptcy Court, Southern District of New York, presenting information on the serious negative implications for commercial real estate finance in the remedies and positions pursued by General Growth Properties in its bankruptcy filings.

CMSA believes that the inclusion of special purpose subsidiaries in General Growth Properties bankruptcy filing in mid-April may threaten the fundamental principles of structured finance and securitization. Borrowers receive favorable loan terms based on lender, investor and rating agency reliance on isolation of the commercial property from the credit exposure of affiliates of the borrower. CMSA believes the strategy pursued by GGP violates this principle and, if upheld, would put into question the reliability of the rule of law in commercial finance.

CMSA strongly believes that the actions sought and positions taken by GGP are not supportable, violate fundamental legal and financial principles, and would be a tremendous blow to an already shaky economy and to federal and private-sector attempts to revive the commercial mortgage-backed securities market.

For a full copy of the joint amicus brief, click here.

And of course, any outcome that is not to the liking of the CMSA, will only provide them with more political leverage to readjust the terms of the TALF programs for Commercial Real Estate one more time. In fact Citi has already opined on this in a Roundtable on Securitized Products:

We believe Friday’s announcement was only an early expansion of TALF 1.0. We believe that the Fed and Treasury are still evaluating expanding TALF to secondary CMBS positions as part of the next phase of TALF expansion. An announcement is likely in the coming weeks.

So yes, looks like more money will be thrown at the problem. After all it is merely cotton with some green ink at this point.

CMSA amicus brief below: