H/T Pedro da Costa

As always the same players, never fails.

Reuters-

Europe’s muted commercial property debt securitisation market will not return to a multi-billion pounds business until a row is settled over controversial X-Notes, a bond used by issuing banks to protect their slice of profits.

“X-Notes are one of the biggest issues facing European CMBS, because (when the underlying loans fail) investors see the bank that issued the transaction still making a fortune, they’re actually quite hacked off,” one source told Reuters.

[REUTERS]

Could this be the Ibanez of CMBS?

AMICUS BRIEF IN SUPPORT OF APPELLANT’S PETITION FOR REVIEW

La Villita Motor Inns, J.V., Executive Motels of San Antonio, Inc., and S.A. Sunvest
Hotels, Inc.
Appellant,

v.

Orix Capital Markets, LLC, Bank of America, N.A. LNR Partners, Inc., Capmark
Finance, Inc., Nicholas M. Pyka as Trustee, Michael N. Blue as Trustee, and Greta E.
Goldsby as Trustee,
Appellees.

Excerpt:

INTRODUCTION

This case involves a controversy about mortgage servicing. Mortgage servicing is the administration of mortgage loans—the collection of payments and management of defaults—on behalf of third parties. Mortgage servicing is an essential component of mortgage securitization, which is the predominant method for financing commercial mortgages in major metropolitan markets and for financing residential mortgages nationwide.

Continue reading below…

[ipaper docId=53270473 access_key=key-1zkex8darfag1jk7wyxb height=600 width=600 /]

Jennifer E. Bethel*
Allen Ferrell**
Gang Hu***

ABSTRACT

This paper explores the economic and legal causes and consequences of the 2007-2008 credit crisis. We provide basic descriptive statistics and institutional details on the mortgage origination process, mortgage-backed securities (MBS), and collateralized debt obligations (CDOs). We examine a number of aspects of these markets, including the identity of MBS and CDO sponsors, CDO trustees, CDO liquidations, MBS insured and registered amounts, the evolution of MBS tranche structure over time, mortgage originations, underwriting quality of mortgage originations, and write downs of the commercial and investment banks. In light of this discussion, the paper then addresses questions as to whether these difficulties might have been foreseen, and some of the main legal issues that will play an important role in the extensive litigation (summarized in the paper) that is underway, including the Rule 10b-5 class actions that have already been filed against the banks, pending ERISA litigation, the causes-of-action available to MBS and CDO purchasers, and litigation against the rating agencies. In the course of this discussion, the paper discusses three distinctions that will likely prove central in the resolution of the securities class action litigation: (1) “no fraud by hindsight”; (2) “truth on the market”; and (3) loss causation.
*

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HARVARD
JOHN M. OLIN CENTER FOR LAW, ECONOMICS, AND BUSINESS
LEGAL AND ECONOMIC ISSUES IN LITIGATION
ARISING FROM THE 2007-2008 CREDIT CRISIS

Posted Feb 01, 2011 10:19am EST by Stacy Curtin in Investing, Recession

The U.S. consumer may be on the mend as we head further into 2011, but the same story of resurgence does not apply to many of the U.S. big-box retailers.

From Wal-Mart to Sears to Target to Best Buy, if you look at what is happening in the retail space, “it looks pretty scary,” says retail expert Howard Davidowitz.

Wal-Mart — the world’s largest retailer – has seen six consecutive quarters of negative same-store sales and is now looking to put the majority of its investment capital towards emerging markets.

In the case of Target and Best Buy, they both recently missed major key earnings expectations. Making matters worse, Best Buy “tanked” even without the competition from the now defunct Circuit City, Davidowitz points out.

Tale of Two Stores

By KRIS HUDSON And A.D. PRUITT

Like homeowners walking away from mortgaged houses that plummeted in value, some of the largest commercial-property owners are defaulting on debts and surrendering buildings worth less than their loans.

Companies such as Macerich Co., Vornado Realty Trust and Simon Property Group Inc. have recently stopped making mortgage payments to put pressure on lenders to restructure debts. In many cases they have walked away, sending keys to properties whose values had fallen far below the mortgage amounts, a process known as “jingle mail.” These companies all have piles of cash to make the payments. They are simply opting to default because they believe it makes good business sense.

“We don’t do this lightly,” said Robert Taubman, chief executive of Taubman Centers Inc. The luxury-mall owner, with upscale properties such as the Beverly Center in Los Angeles, decided earlier this year to stop covering interest payments on its $135 million mortgage on the Pier Shops at Caesars in Atlantic City, N.J.

Taubman, which estimates the mall is now worth only $52 million, gave it back to its mortgage holder.

“Where it’s fairly obvious that the gap is large, as it was with the Pier Shops, individual owners are making very tough decisions,” he said.

These pragmatic decisions by companies to walk away from commercial mortgages come as a debate rages in the residential-real-estate world about “strategic defaults,” when homeowners stop making loan payments even though they can afford them. Instead, they decide to default because the house is “underwater,” meaning its value has fallen to a level less than its debt.

Banking-industry officials and others have argued that homeowners have a moral obligation to pay their debts even when it seems to make good business sense to default. Individuals who walk away from their homes also face blemishes to their credit ratings and, in some states, creditors can sue them for the losses they suffer.

But in the business world, there is less of a stigma even though lenders, including individual investors, get stuck holding a depressed property in a down market. Indeed, investors are rewarding public companies for ditching profit-draining investments. Deutsche Bank AG’s RREEF, which manages $56 billion in real-estate investments, now favors companies that jettison cash-draining properties with nonrecourse debt, loans that don’t allow banks to hold landlords personally responsible if they default. The theory is that those companies fare better by diverting money to shareholders or more lucrative projects.

“To the extent that they give back assets or are able to rework the [mortgage] terms, it just accrues to the benefit” of the real-estate investment trust, says Jerry Ehlinger, RREEF’s co-chief of real-estate securities.

Continue reading…Wall Street Journal