Is There a Bottom to the CMBS Market?

Still no mark to market – Steve Hsu at Information Processing via Dealbreaker Mortgage- 28 July 08

Mortgage-backed assets with face value of $30.6B were just sold by Merrill for $6.7B…but, amazingly, this 80% loss on the securities only gives a kind of upper bound on their value: Merrill had to provide 75% of the financing to the buyer…..

Word on the street is that this financing arrangement isn’t atypical. Securitization warehousers are now paying to move the loans off of their books on to other balance sheets while keeping a large chunk of the risk. What this does is to chop up the write-downs into pieces spread over different entities and different accounting periods – some far enough in the future that the participants can hope the market will recover before they have to realize the loses. Of course the market may not and I doubt if the accounting reflects the contingent risk.