The CREFC Investor Reporting Package (IRP) 8.0 was issued in February 2016 and is the culmination of over a year’s worth of work from CREFC members representing all sectors of the commercial real estate industry. The main driver for the update was the desire for the servicing community to proactively address Regulation AB and, more specifically, the ongoing reporting of Schedule AL.
Reg AB II, as it is often referred to, is comprised of two main parts: 1. rules relating to the issuance of Asset-Backed Securities and 2. Asset-Level disclosures (Schedule AL). The first piece went into effect in the Fall of 2015, while the Asset-Level disclosures will go into effect in November of 2016.
Schedule AL is very similar to the IRP, however it requires less reporting than the IRP and is filed approximately two weeks after the current IRP information is available to the investment community. It can best be described as a combination of the Annex A and the Loan Periodic Update (LPU)/Property File. The CRE industry has been proactive in addressing changes to the marketplace as evidenced by the numerous updates to the IRP over the past two decades. After the financial crisis of 2008, the IRP was expanded to include additional loss and modification reporting, while the Watchlist was overhauled to reflect the new marketplace dynamics.
While compliance with Reg AB is tied to an issuer’ shelf eligibility, the servicing community recognized that as a practical matter, the information required for completion of the ongoing Schedule AL requirements is housed within their servicing systems. The Servicers Forum and CREFC IRP committee felt it was necessary for the industry to provide a consistent interpretation of the data requirements of Schedule AL and to incorporate it into the requirements of the IRP. The IRP has historically been updated to include any new regulatory needs. Additionally, there has been a consensus that the terms used in the Schedule AL should be comparable to the dictionary included in the IRP.
In January of 2015, servicers, rating agencies, GSE’s and technology firm partners gathered together to perform a line-by-line analysis of and mapping to Schedule AL from the existing IRP. The IRP committee, to simplify compliance, decided to include any missing data points in the existing IRP files and then incorporate the schedule AL as a required data file in the IRP as well. By doing this, the Pooling and Servicing Agreement (PSA) needs to merely reference the IRP files as a requirement of the servicer as they do today, without having to provide extensive language to meet the issuer responsibilities around Schedule AL. This is a key point of IRP 8.0. No changes to the PSA are needed to document the requirement of the servicer to prepare Schedule AL on an on-going basis. As a result of this, 15 new fields were added to existing files within the IRP and two new data files were created, including Schedule AL. Several existing fields were modified slightly to incorporate the needs of Schedule AL.
As previously mentioned, the IRP is a continually evolving document that adjusts to the needs of the market. Since the committee was opening the proverbial “box” to update for Schedule AL, we also considered all outstanding requests for changes to the IRP. The requests encompassed a number of items from servicers, issuers, rating agencies and investors. Each one was discussed in committee and evaluated. When considering a request for an additional data field, the IRP committee looks to see if the data point is one that will provide additional clarity and transparency to the market, whether the information is provided other places in the IRP, the availability of the information and the frequency with which the information is used.
After several meetings and much debate, an additional 13 data fields were added to the IRP. The IRP committee also reviewed requests to update existing fields or to provide additional guidance around their use. In all, 24 changes were made to existing data fields within the IRP.
Several of the changes provide further detail regarding advances. New fields were added to identify Current and Cumulative Non-Recoverable Interest as well as current month Work-Out Delayed Advances to Servicer (WODRA) that were advanced by the Trust. The inclusion of these fields will facilitate cash flow modeling at liquidation. In addition, many new PSA’s require certain special servicing fees to be disclosed, thus a new field was added to the LPU.
With the introduction of Single Family Rental properties to the market, adjustments were made to the IRP to account for this property type. The IRP committee changed the existing industry standard for property sales. Prior to the issuance of IRP 8.0, properties were no longer reported after they were liquidated. With the adoption of 8.0, liquidated properties will continue to be reported on the IRP.
IRP 8.0 has an effective date of September 30, 2016, with Schedule AL being required for all deals issued after November 20, 2016. The servicer community once again came together to proactively address the changing regulatory environment and market conditions. The full IRP 8.0 can be found on the CREFC website at http:/www.crefc.org/CREFC/Industry_Standards/CREFC_IRP/CREFCIRP8.0.aspx
As a reminder, all IRP meetings are open to any CREFC member and we encourage all industry participants to contribute to future discussions.