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December 4, 2017 VIA EMAIL Ms. Rachel Mincin Associate Chief Accountant Office of the Chief Accountant U.S. Securities and Exchange Commission 100 F Street, N.E Washington, D.C. 20549-6628 RE: Confirmation Letter Related to SIFMA1 submission entitled “Request for Interpretive Guidance on the application of the derecognition rules under Topic ASC 860 to the financial assets transferred in a CMBS issuance using the Third-Party Purchaser Option to comply with the Risk Retention Rule”. Dear Ms Mincin: This is to confirm our discussion on November 6, 2017 with the Staff of the Office of the Chief Accountant of the Securities and Exchange Commission (the “Staff”) regarding an accounting submission with the title ‘Request for Interpretive Guidance on the application of the derecognition rules under Topic ASC 860 to the financial assets transferred in a CMBS issuance using the Third-Party Purchaser Option to comply with the Risk Retention Rule’ dated September 13, 2017 (the “Submission”). We understand that the Staff’s conclusions are based solely on the facts and circumstances provided to the Staff via: (a) the Submission and (b) the conference call held on September 26, 2017. Capitalized terms not defined herein are defined in the Submission. Background In October 2014, the Regulators adopted a final Rule implementing the credit risk retention requirements of the Dodd-Frank Act. Under the Rule, sponsors of issuances of asset-backed securities, including CMBS, are generally required to retain 5% of the credit risk relating to the underlying for a specified period of time. In a CMBS offering, the risk retention requirements may be satisfied in whole or in part by having a Third-Party Purchaser (“TPP”) purchase the Risk Retention Interest. The Rule subjects the TPP to the same requirements to which the Retaining Sponsor would have been subject, including constraints on sale and certain restrictions on hedging and pledging on a non-recourse basis. More background information is contained in the Submission. 1 SIFMA is the voice of the U.S. securities industry. We represent the broker-dealers, banks and asset managers whose nearly 1 million employees provide access to the capital markets, raising over $2.5 trillion for businesses and municipalities in the U.S., serving clients with over $18.5 trillion in assets and managing more than $67 trillion in assets for individual and institutional clients including mutual funds and retirement plans. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org. 

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SEC Staff Position Based on the discussion on November 6, 2017, our understanding of the SEC Staff’s position communicated to us is as follows:

1) The Staff does not object to the overall conclusion expressed in the Submission, that derecognition is achieved for the transferors in each of the two fact patterns described on page five (5) of the Submission. Specifically, the restrictions placed on the TPP resulting from the Rule do not cause the transferors to fail to meet the conditions in ASC 860-10-40-5(b) in each of the two fact patterns described in the Submission.

2) The Staff observes that the final Rule (Credit Risk Retention, 79 FR 77602 et seq.

(December 24, 2014)) specifically states the intention behind the TPP Option is “to balance two overriding goals: (1) Not disrupting the existing CMBS third-party purchaser structure and (2) ensuring that risk retention promotes good underwriting”. (79 FR at 77648). The Staff’s conclusion is not based on the analysis set forth in Appendix 1- Technical Accounting Analysis of the Submission, but rather based on the unique facts and circumstances described in the Submission that arise from a change in regulation of the securitization market imposed by the Regulators under the Rule and the documented regulatory intent of the TPP Option. The Staff’s conclusion should not be analogized to other fact patterns.

On behalf of SIFMA’s GFI Accounting Committee, I want to thank the SEC Staff for their consideration of this issue. Regards,

Mary Kay Scucci, PhD, CPA SIFMA Managing Director cc: Andrew Pidgeon, Professional Fellow, SEC Office of the Chief Accountant Robert Sledge, Professional Fellow, SEC Office of the Chief Accountant Lindsey McCord, Associate Chief Accountant, SEC Division of Corporation Finance Chief Accountant, SEC Division of the Corporate Finance Chief Accountant, SEC Office of the Chief Accountant Timothy J Bridges, Goldman, Sachs & Co, Chair SIFMA Global Financial Institutions Accounting Committee

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Joanne Wakim, Assistant Director and Chief Accountant, Federal Reserve Rusty Thompson, Deputy Comptroller and Chief Accountant, OCC Bob Storch, Chief Accountant, Division of Risk Management, FDIC John Bishop, Partner, PricewaterhouseCoopers Joseph Cascio, Partner, Ernst & Young Michael Hall, Partner, KPMG John Howard, Senior Partner, Deloitte

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September13,2017

VIAEMAIL

Mr.WesleyR.BrickerAccountingGroup‐InterpretationsOfficeoftheChiefAccountantU.S.SecuritiesandExchangeCommission100FStreet,N.E.;MailStop6628Washington,D.C.20549‐6628OCARequest@sec.govRe:RequestforInterpretiveGuidanceontheapplicationofthederecognitionrules under Topic ASC 860 to the financial assets transferred in a CMBSissuanceusing theThirdPartyPurchaserOption to complywith theRiskRetentionRuleDearMr.Bricker,TheGlobalFinancialInstitutionsAccountingCommitteeoftheSecuritiesIndustryandFinancialMarketsAssociation(“SIFMA”)1isrequestinginterpretiveguidancefrom the Office of the Chief Accountant regarding the application of thederecognition rules under ASC Topic 860, Transfers and Servicing. Our specificquestionrelatestotheapplicationofASC860‐10‐40‐5(b),thetransferee’srighttopledge or exchange the financial assets transferred in a commercial mortgagebacked securities (“CMBS”) issuance using the Third Party PurchaserOption tocomplywiththeriskretentionrule(the“Rule”),asdiscussedmorefullybelow.2Adraftofthisletterwassharedwithourauditfirmsandtheircommentsweretakenintoconsideration.Weaskyoutoconsidertheanalysishereinlimitedtothefactsasprovided,and toconfirm thatyouwouldnotobject to theoverall conclusion

1SIFMAisthevoiceoftheU.S.securitiesindustry.Werepresentthebroker‐dealers,banksandassetmanagerswhosenearly1millionemployeesprovideaccesstothecapitalmarkets,raisingover$2.5trillionforbusinessesandmunicipalitiesintheU.S.,servingclientswithover$18.5trillioninassetsandmanagingmore than $67 trillion in assets for individual and institutional clients includingmutualfundsandretirementplans.SIFMA,withofficesinNewYorkandWashington,D.C.,istheU.S.regionalmemberoftheGlobalFinancialMarketsAssociation(GFMA).Formoreinformation,visithttp://www.sifma.org2RegulationRR,12CFRPart246issuedjointlybytheRegulatorsunderSection15GoftheSecuritiesExchangeActof1934(15.U.S.C.78o‐11),asaddedbysection941oftheDodd‐FrankWallStreetReformandConsumerProtectionAct.

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reached,thatderecognitionisachievedforthetransferorsineachofthetwofactpatternsdescribedonpage4ofthisletter.BackgroundRiskRetentionRuleIn October 2014, the Office of the Comptroller of the Currency, the Board ofGovernors of the Federal Reserve System, the Federal Deposit InsuranceCorporation, the Securities and Exchange Commission, the Federal HousingFinance Agency and the Department of Housing and Urban Development(collectively the “Regulators”)adopteda finalRule implementing thecredit riskretentionrequirementsoftheDodd‐FrankAct.TheobjectiveoftheRuleistoaligntheinterestsofthesponsorofasecuritizationwithitsbeneficialinterestholdersby requiring a sponsor to retain a specifiedpercentageof the credit risk of theassetsitsecuritizes.UndertheRule,sponsorsofissuancesofasset‐backedsecurities,includingCMBS,aregenerally required to retain5%of the credit risk relating to theunderlyingassetsuntil the latestof:1) thereductionof theunpaidprincipalbalanceof theunderlyingloansreaches33%oftheiroriginalunpaidprincipalbalanceasofthesecuritizationcut‐offdate;2)thereductionoftheunpaidprincipalbalanceoftheissued securities reaches 33% of its original principal balance as of thesecuritizationclosingdate;or3)twoyearsafterthesecuritizationclosingdate.Agiventransactionmayhavemultiplesponsorswherebyeachtransfersloansintothesecuritization;butonlyonepartymayactasretainingsponsorundertheRule(the“RetainingSponsor.”)Duringtherequiredriskretentionperiod,theRetainingSponsor and other permitted holders3 of the risk retention interest (“RiskRetentionInterest”)maynottransfertheRiskRetentionInterest,enterintocertaincredithedges,orborrowagainst theRiskRetention Interestonanon‐recourse4basis.TheRiskRetentionInterestmayberetainedas1)averticalinterestrepresentinganinterestineachclassofsecuritiesissuedinthesecuritizationinanamountequalto5%oftheparvalueofallsuchclassesorasingleverticalinterestrepresentinga5%par interest in each tranche, 2) a horizontal interest representing themostsubordinateclassorclassesofsecuritiesissuedinthesecuritizationinanamountequalto5%ofthe“fairvalue”ofallofthesecuritiesissued(determinedbyusingthefairvaluemeasurementframeworkunderU.S.GAAP),or3)anycombinationofvertical and horizontal risk retention that sums to 5% determined as set forthabove,typicallyreferredtoasan“L‐shape”structure.

3Generally,certainqualifyingoriginators,andforCMBS,athirdpartypurchaser,asfurtherdiscussedinthisletter.4Therestrictionislimitedtofull‐recoursepledgingbecausetheintentoftheRuleistoensurethattheRetainingSponsor,orotherpermittedholder,includingtheTPP,continuestobesubjecttothecreditriskoftheRiskRetentionInterest.

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InaCMBSoffering,asanalternativetodirectlyretainingaRiskRetentionInterest,the Retaining Sponsor may satisfy the Rule by having a qualified third partypurchaser (“TPP”),5 also known as a “B‐Piece Buyer,” purchase the mostsubordinateclassorclassesofsecuritiesissuedintheoffering(the“B‐Piece”)inanamountequaltoupto5%ofthefairvalueofalloftheCMBSissuedintheoffering(a horizontal interest or horizontal structure). In the event a TPP does notpurchaseenoughhorizontalsecuritiestomeetthefull5%fairvaluerequirement,the Retaining Sponsor can utilize an L‐shape structure to satisfy the 5% riskretentionbyitselfretaininganincrementalverticalinteresttocollectivelymeetthe5%requirement.WerefertotheutilizationofaTPPineitherahorizontalstructureorL‐shapestructureasthe“TPPOption.”TheRuledoesnotpermitsellingaverticalinteresttoaTPP.The Regulators specifically provided for a TPP Option as an alternative to theRetainingSponsorcomplyingwiththeRulebydirectlyholdingtheRiskRetentionInterest itself. In developing the Rule, the Regulators recognized that CMBSofferings,whichhistoricallyrelieduponaB‐PieceBuyer,functiondifferentlyfromotherABSassetclasses.CMBSofferingstypicallyhavealongerterm(i.e.,between5 to 10 years) than other ABS offerings. Without the TPP Option, the longermaturities would result in the Retaining Sponsor amassing a large portfolio ofCMBSRiskRetention Interests,making it lessattractive forsponsors toprovideneededcapitaltothecommercialrealestatemarket.ThehistoricalB‐PieceBuyerinaCMBSofferingconductsitsownduediligenceonalloftheloansintendedtobesecuritized.TheRulerecognizesthattheB‐PieceBuyerisasophisticatedinvestorthatnotonlyperformsextensiveduediligenceoneachloaninthepool,butalsotakesthefirst‐losspositioninthepoolofloans.TheRegulatorsviewedtheB‐PieceBuyerassatisfyingthelegislativegoalofhavingapartyatriskwithso‐called“skininthegame”toensuretheloansintheCMBSissuanceinwhichtheB‐PieceBuyeris purchasing the first loss risk position are rigorously underwritten by theoriginatorsofthoseloansandre‐underwrittenbyasophisticatedB‐PieceBuyer.In theeventaTPP isutilized tosatisfyalloraportionof the5%risk retentionrequirement, the Rule subjects the TPP to the same requirements towhich theRetainingSponsorwouldhavebeensubjectto, includingconstraintsonsaleandcertainrestrictionsonhedgingandpledgingonanon‐recoursebasis.6 TheRulerequires that the Retaining Sponsor “maintain and adhere to” policies andprocedurestomonitortheTPP’scompliance.TheRuledoesnotspecifywhatsuchpolicies and procedures should be and does not indicate the penalty for non‐compliance (if any). The Retaining Sponsor imposes certain controls in itsagreement with the TPP to facilitate monitoring, such as requiring periodiccertificationsbytheTPPofitscompliancewiththeRuleandtherighttoholddue

5TheRuleallowstheRiskRetentionInteresttobesoldtouptotwoTPPs,whoserespectiveinterestsmustbeparipassu.Forpurposesofthisfactpattern,itisassumedthatthereisonlyoneTPP.6TheRetainingSponsorandtheTPPmaysellitsRiskRetentionInterestafter5yearstoasubsequentTPPthatwouldbesubjecttotherestrictionsundertheRule.

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diligence meetings with the TPP to monitor compliance. In addition, the RiskRetentionInterestheldbytheTPPmaybeincertificatedform,andheldbyathirdpartycustodianwhoisnotpermittedtoreleasetheRiskRetentionInterestwithoutthe consent of the Retaining Sponsor, which consentmay not be unreasonablywithheld,delayedorconditioned.SecuritizationStructureCMBStransactionstypicallyoccurthroughatwo‐steptransfer.7 Inthefirststep,loans arepurchasedby theDepositor from theRetainingSponsor and/orotherloansellers.TheDepositoristypicallyawhollyownedsubsidiaryoraffiliateoftheRetainingSponsorandoftheRetainingSponsor’ssellingentity(ifotherthantheRetainingSponsor.)TheDepositorislegallystructuredasaspecialpurposeentity.Inthesecondstep,theDepositorsellstheloanstoanewlycreatedcommonlawtrust(the“Trust”)inexchangefor100%ofthepass‐throughcertificatesbackedbythose loans. The Depositor sells the non‐risk retention certificates to anunderwriter or initial purchaser or through a placement agent. Theunderwriter/initial purchaser/placement agent then sells/places the non‐riskretentioncertificatesto/withthirdpartyinvestors.Throughthesetwosteps,theRetainingSponsormeetstheconditionsforlegaltruesaleoftheunderlyingloans.TheDepositorsellstheRiskRetentionInteresttoeithertheRetainingSponsorortoaTPPorboth.AQualifyingOriginator (i.e., a sponsor thatoriginated20%ormore of the pool of loans) may also purchase a portion of the Risk RetentionInterestfromtheRetainingSponsorortheDepositorinapercentageproportionatetothecollateralitcontributestothetransaction,andthereuponbecomessubjecttotherestrictionsundertheRule.DerecognitionbytheRetainingSponsorTheobjectiveofASC860 is todeterminewhethera transferorhas surrenderedcontrol over a transferred financial asset forpurposes of concludingwhether itshould be derecognized.8 If control over the transferred financial asset is notsurrendered,thetransferorcontinuestorecognizethetransferredfinancialasseton its balance sheet and any proceeds received are recognized as a securedfinancing.Whenthetransfereeisasecuritizationentity,integraltoconcludingthatcontrolhasbeensurrenderedisadeterminationthateachthirdpartybeneficialinterestholderhastherighttopledgeorexchangeitsinterestsunderASC860‐10‐40‐5(b).Assumptions:In this fact pattern, it is assumed that the Retaining Sponsor is not otherwiserequiredtoconsolidatetheCMBSissuer,legalisolationisachieved(ASC860‐10‐40‐5(a)),andtheRetainingSponsordoesnotmaintaineffectivecontrol(ASC860‐10‐40‐5(c)). We have also assumed that the Retaining Sponsor’s ongoinginvolvementwiththeCMBSissuerislimitedtotherequirementsundertheRulewhich includes the agreement between the Retaining Sponsor and the TPP7AsdescribedinASC860‐10‐55‐22.SeestructurediagramattachedasAppendix28ASC860‐10‐40‐4

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described above in compliancewith the Rule andwhichmay include holding averticalRiskRetentionInterest.TheRetainingSponsordoesnototherwiseenterintoothercontractualrelationshipswiththesecuritizationentityoritsbeneficialinterest holders. 9 For purposes of the accounting analysis, unless otherwisespecificallynoted, references to the “RetainingSponsor” includes all transferorsinto the securitization such as other loan originators, and is not specific to theRetaining Sponsor as defined by the Rule. Reference to the “named RetainingSponsor”referssolelytotheRetainingSponsorasdefinedbytheRule.Issue:Does the Retaining Sponsor satisfy the condition in ASC 860‐10‐40‐5(b)10(hereafterreferredtoas“condition5(b)”orsimply“5(b)”)ineachofthefollowingfactpatterns:

1. A 5% horizontal interest, representing the most subordinated class orclassesinthesecuritization,soldtoaTPP

2. AnL‐shapestructurewhichinvolvesaverticalinterestheldbytheRetainingSponsorandahorizontalinterestsoldtoaTPP;thecombinationofwhichmakesupthe5%RiskRetentionInterest.

WenotethatiftheRetainingSponsorholdsthe5%RiskRetentionInterestonitsbalancesheet,itisclearthatcondition5(b)ismetbecausethebeneficialinterestisheldbytheTransferorratherthanbya“thirdpartyholder.”AccountingAnalysisandConclusion:Webelieve theobjectiveofASC860 ismetandderecognition isachievedincludingundercondition5(b)whenaRiskRetentionInterestissoldtoaTPPinaCMBSsecuritization,usingeitherahorizontalstructureoranL‐shapestructure despite the regulatory restrictions that the TPPmust observe.Accordingly, derecognition of both the transferred loans and the RiskRetentionInterestsoldtotheTPPisappropriate,basedonthefactsassumedinthisletter.Thisconclusionisbasedonthefollowinganalysis:First,theTPPcontrolstheRiskRetentionInterestbyholdinglegaltitleandbecauseithastherighttopledgeitsinterestonafull‐recoursebasis.WebelievetheTPP9Limitedtotheassumptionsdescribedabove,thisaccountinganalysisconsidersallarrangementsoragreementsmadecontemporaneouslywithandincontemplationofthetransferconsistentwiththeobjectivesofASC860‐10‐40‐4.10ASC860‐10‐40‐5bstates“Thisconditionismetifbothofthefollowingconditionsaremet:1)Eachtransferee(or,ifthetransfereeisanentitywhosesolepurposeistoengageinsecuritizationorassetbackedfinancingactivitiesandthatentityisconstrainedfrompledgingorexchangingtheassetsitreceives,eachthirdpartyholderofitsbeneficialinterests)hastherighttopledgeorexchangetheassets(orbeneficialinterests)itreceived.2)Noconditiondoesbothofthefollowing:i.)Constrainsthetransferee(orthird‐partyholderofitsbeneficialinterests)fromtakingadvantageofitsrighttopledgeorexchangeii.)Providesmorethanatrivialbenefittothetransferor(seeparagraphs860‐10‐40‐15through40‐21).Ifthetransferor,itsconsolidatedaffiliatesincludedinthefinancialstatementsbeingpresented,anditsagentshavenocontinuinginvolvementwiththetransferredfinancialassets,theconditionunderparagraphASC860‐10‐40‐5(b)ismet.  

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has the right to “all ormostof thecash inflows” thatare theprimaryeconomicbenefit of the Risk Retention Interest by receiving payments of principal andinterest,throughitsrighttopledgeonarecoursebasisanditsrighttoselltheRiskRetention Interest after the restrictionperiod expires. Moreover, theRetainingSponsordoesnothaveanycontrolovertheRiskRetentionInterest.AnyrighttodirecttheuseoftheRiskRetentionInterestisoutsidethecontroloftheRetainingSponsor.AllvotingrightsandotherrightstothecashflowsoftheRiskRetentionInterestresidewiththeTPP.Second,whiletheTPPisrestrictedfromexchangingitsinterestandpledgingonanon‐recoursebasis,therestrictionsareimposedontheTPPsolelytocomplywiththerequirementsoftheRule.TherestrictionsexistwhethertheRetainingSponsorretainsaportionoftheRiskRetentionInterestornot,validatingthepointthatitisimposedbytheRulenottheTransferor.Further,theRegulatorsacknowledgedthatthe restrictions under the Rule are regulatory imposed.11 Therefore, therestrictionsundertheRulearenota“constraint”undercondition5(b).Third,theTPPpurchasestheRiskRetentionInterestatafairvaluethattakesintoconsideration any regulatory restrictions of the Rule. That is, the proceeds theRetainingSponsorreceivesarediscountedbecausetheRiskRetentionInterestisrestricted.TheRulewasenactedtobenefitandprotectthethirdpartyinvestorsina securitization, not to provide a benefit to the Retaining Sponsor. Further, asdescribedinthebackgroundsection,theTPPhistoricallyhasbeentheinvestorintheB‐PieceandtherestrictionsimposedbytheRulearenotinconsistentwithitsgeneralinvestmentstrategy.Therefore,wedonotbelievetherestrictionsundertheRuleprovidemorethanatrivialbenefittotheRetainingSponsor.Finally,theRetainingSponsorderivesnoongoingmonetarybenefitfromtheRiskRetention Interest sold to the TPP or any further control over the transferredassets.WhiletheRetainingSponsormayhavecontinuinginvolvementinthecashflows of the transferred loans in an L‐shape structure, there is no continuinginvolvementinthecashflowsoftheRiskRetentionInterestsoldtotheTPP.SummaryConclusion:Therearemultipleindependentpathstoaconclusionthatcondition5(b)doesnotpreclude derecognition of the loans sold into the securitization and the RiskRetentionInterestsoldtoaTPP(undereitherthefullhorizontalstructureortheL‐shapestructure.) Appendix1sets fortheachof thesearguments,eachofwhichindividually supports a conclusion that condition 5(b) is met. While weacknowledgethatsomemaygivemoreorlessweighttoeachofthearguments,we

11InthefinalRule,theRegulatorsrespondedtoanaccountinginquiryastowhethertheregulatoryrestrictionsimposedonthethirdpartyholdersincludingaTPPcreatesa“defactoagencyrelationship”betweentheRetainingSponsorandtheTPPwhenanalyzingforconsolidationofthesecuritization.TheRegulatorsconcludedthattherestrictionsdonotcreateadefactoagencyrelationshipforpurposesoftheconsolidationanalysisbecausetheyareregulatoryimposed.

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collectivelybelievethatit isappropriatetoconclude,thattheRetainingSponsorhassurrenderedcontrolascontemplatedbyASC860overthetransferredloansand Risk Retention Interest post‐securitization using a TPP Option in both ahorizontal and a L‐shape structure, notwithstanding the regulatory restrictionsimposedontheRiskRetentionInterest.Webelieveitisimportanttoemphasizethatanalternativeconclusion,namelythatusingtheTPPOptionresultsinafailedsalefortheRetainingSponsor,leavestheRetainingSponsorwiththeanomalouspositionofrecognizingmoreassetsonitsbalancesheetasaresultofasaleof theRiskRetentionInteresttotheTPPthanwouldberecognizedifitheldtheRiskRetentionInterestdirectly.Thisisbecause,absent the use of the TPP Option, the Retaining Sponsor would achievederecognitionofthetransferredloans12andwouldonlyrecognizeonitsbalancesheettheRiskRetentionInterest.Webelieve,asanunintendedconsequence,ifthisalternative view were to be applied, the TPP Option would no longer be theeffectivetoolintendedbytheRegulatorstobeusedbysponsorsofCMBStofreeupcapitalsothattheycancontinuetoprovideliquiditytothecommercialrealestatemarket,whilestillmeetingtheobjectivesoftheRule.Asdescribed inthebackgroundsection, theRuleprovidestheTPPOptionasanaccommodation for the unique aspects of the CMBSmarket. In this unique factpattern,theTPPeffectivelyservesinthesameorsimilarcapacityastheRetainingSponsor,which iswhyaTPP isdeemed to satisfy theobjectivesof theRule. Inessence, the Rule acknowledges that the TPP is different from the remaininginvestorsinthesecuritization.TheRiskRetentionInterestisdeterminedduringthestructuringphaseofthesecuritizationandtheTPPissignificantlyinvolvedinshaping the loan portfolio stemming from the due diligence it performs on thecreditriskoftheproposedloanpool. GiventheroletheTPPfulfills,asaspecialaccommodationundertheRule,webelieveitisimportanttoanalyzecondition5(b)inthecontextoftheobjectivesoftheRule.We thank you in advance for your consideration of thismatter.Wewould behappy to discuss this request for interpretive guidance with you at yourconvenience. Please contact Mary Kay Scucci at 212‐313‐1331 if you havequestionsorcommentsconcerningourletter. Regards

12Asnotedabove,condition5(b)appliestothirdpartybeneficialholderswhichdoesnotincludetheRetainingSponsor.

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MaryKayScucci,PhD,CPASecuritiesIndustryandFinancialMarketsAssociationcc:TimothyBridgesChairman,SIFMAGlobalFinancialInstitutionsAccountingCommittee

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Appendix1–TechnicalAccountingAnalysisSummaryofassumptionsunderlyingthefactpattern:TheobjectiveofASC860 is todeterminewhethera transferorhas surrenderedcontrol over the transferred financial assets. The focusof the technical analysisbelowisonASC860‐10‐40‐5(b).Forpurposesofthisanalysis,itisassumedthattheRetainingSponsor isnototherwiserequiredtoconsolidatetheCMBSissuer,legalisolationisachieved(ASC860‐10‐40‐5(a)),andtheRetainingSponsordoesnotmaintaineffectivecontrol(ASC860‐10‐40‐5(c)).WehavealsoassumedthattheRetainingSponsor’songoinginvolvementwiththeCMBSissuerislimitedtotherequirementsundertheRulewhichincludestheagreementbetweentheRetainingSponsorandtheTPPdescribedaboveincompliancewiththeRuleandwhichmayincludeholdingaverticalRiskRetentionInterest.TheRetainingSponsordoesnototherwiseenterintoothercontractualrelationshipswiththesecuritizationoritsbeneficialholders.13ASC860‐10‐40‐5(b)states“Thisconditionismetifbothofthefollowingconditionsaremet:1)Eachtransferee(or,ifthetransfereeisanentitywhosesolepurposeistoengage insecuritizationorassetbacked financingactivitiesandthatentity isconstrained frompledgingorexchanging theassets it receives, each thirdpartyholderoritsbeneficialinterests)hastherighttopledgeorexchangetheassets(orbeneficialinterests)itreceived.2)Noconditiondoesbothofthefollowing:i.Constrains thetransferee(orthird‐partyholderof itsbeneficial interests) fromtaking advantage of its right to pledge or exchange. ii.Providesmore thanatrivialbenefittothetransferor(seeparagraphs860‐10‐40‐15through40‐21).If the transferor, its consolidated affiliates included in the financial statementsbeing presented, and its agents have no continuing involvement with thetransferredfinancialassets,theconditionunderparagraphASC860‐10‐40‐5(b)ismet.Questions1‐3shouldbereadunderanassumptionthattheRetainingSponsor(transferor)hascontinuinginvolvement14inthetransferredfinancialassets.However,thereisaquestiononwhethertheRetainingSponsor(transferor)hascontinuinginvolvementwhichisdiscussedinQuestion4.Question1:Asdescribedinthebackgroundsectionabove,theTPPisabletopledgeona fullrecoursebasisbut isconstrained frompledgingonanon‐recoursebasisorexchangingtheRiskRetentionInterestitpurchased.Iscondition5(b)met?

13 Limited to the assumptions described above,we considered all arrangements or agreementsmadecontemporaneouslywith,orincontemplationof,thetransfer,therebysatisfyingtheobjectiveandrequirementsofparagraph860‐10‐40‐4.14AsdefinedintheMasterGlossary.

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Conclusion:Yes.Webelievecondition5(b)ismetwherethetransfereehastherighttopledgeorexchangeatransferredasset.WhiletheTPPisprohibitedfromsellingitsRiskRetention Interest as prescribed by the Rule, the TPP is free to pledge it on arecoursebasis,subjecttotheapprovaloftheRetainingSponsor,whichapprovalshallnotbeunreasonablywithheld,conditioned,ordelayed.TheapprovaloftheRetainingSponsorisrequiredinordertomonitortheTPP’scompliancewiththeRule.ASC860‐10‐55‐27clarifiesthatinatransactionwherethetransfereeisprecludedfrom exchanging the transferred asset but has the ability to pledge, thedetermination of whether condition 5(b) is met depends on the facts andcircumstances. The FASBAccounting StandardsCodificationdoes not explicitlydefine the term “pledge”within itsMasterGlossary,but itprovidesbackgroundinformation on a pledge and defines the related terms “security interest” and“collateral”withinASC860.ASC860‐30‐05‐3notesthatifcollateralistransferredto thesecuredparty, it is commonly referred toasa “pledge.”ASC860‐30‐05‐2notesthatadebtormaygrantasecurity interest incertainassetstoa lendertoserveascollateralforitsobligationunderaborrowing,withorwithoutrecoursetootherassetsoftheobligor.Ascondition5(b)doesnotlimit“pledge”torecourseornon‐recoursefinancingandASC860discusses“pledging”morebroadly,webelieveitismoreappropriatetoconsiderthefactsandcircumstancesofthetransactionindeterminingwhethercondition5(b)ismet.Wedonotbelieveitisappropriatetoconcludethattheterm“pledge”incondition5(b)isintendedtobelimitedtonon‐recoursefinancings.Condition 5(b) is written from the perspective of the transferee; however,conceptuallytheconditionrepresentsanassessmentofwhohascontroloverthetransferredasset.Specifically,forsecuritizationentities,the5(b)analysisfocusesonwhetherthethirdpartybeneficialinterestholdershaveobtainedcontrolovertheir beneficial interests, as opposed to whether the transferee has obtainedcontrol over the transferred financial assets. That is, if the transferee (or thirdpartybeneficialinterestholder)hastherighttopledgeorexchangethetransferredfinancialasset,thencontrolresideswiththetransferee.Ifthetransfereedoesnotmeetthiscondition,thentheassumptionisthatcontrolhasnotbeenrelinquishedbythetransferor.WebelievethattheRetainingSponsordoesnothavecontroloverthe TPP’s Risk Retention Interest because it is unable to make decisions onmonetizingthetransferredasset, includingthedecisiontopledgeorexchangeitoutsideoftheregulatoryrestrictions.TheRetainingSponsor’sinteractionwiththeRisk Retention Interest is limited to monitoring compliance with the TPPprovisionsoftheRuleandisunrelatedtocontrollingtheeconomicbenefitsoftheasset.Paragraph169ofSFAS140BasisforConclusionsstatesthattherighttopledgeorexchangeisimportantinconsideringwhetherthetransfereecontrolsthefinancialassetbecausethroughthisright,thetransfereecanobtainallormostofthecash

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inflowsthataretheprimaryeconomicbenefitsoftheasset.TheTPPcanbenefitfromthecashinflowsoftheRiskRetentionInterestbypledgingitonarecoursebasis.Furthermore,thepledgerestrictiondoesnotprovidetheRetainingSponsorwith control over the future economic benefits of the Risk Retention Interest.DuringtheperiodthattheTPPissubjecttotherestrictionsundertheRule,theTPPis entitled to all of the benefits of ownership, including collecting payments ofprincipalandinterestorothercashflowsontheRiskRetentionInterest,aswellasthe benefit of exercising controlling rights which is typically embedded in thetranchepurchasedbytheTPP.Furthermore, we believe it is important to consider market conventions forobtaining collateralized financing. General market practice is to finance CMBSsecurities using repurchase agreements (e.g., a SIFMA Master RepurchaseAgreement). These agreements are generally recourse financings. As stated inparagraph161oftheFAS140BasisforConclusions,“atransfereemaybeabletouseatransferredassetinsomeofthosewaysbutnotinothers.Therefore,establishingcriteria for determining whether control has been relinquished to a transfereenecessarily depends in part on identifyingwhichways of using the kind of assettransferredarethedecisiveones.”Thus,webelievethattheTPP’srighttopledgetheRiskRetention Interestonarecoursebasis isestablishedasa “decisive”wayofcontrollingthetransferredasset;therefore,condition5(b)ismet.Wenotethattherepofinancingmarketforallriskretentioninterests,includingtheRiskRetentionInterestsheldbyaTPP,isstilldevelopingandcurrentlythereisnoliquidmarketavailabletofinancetheseRiskRetentionInterests.However,ASC860‐10‐40‐18(e)explicitlystatesthatmarketilliquidityalonewouldnotconstrainthetransferee.Forthereasonsstatedabove,webelievethattheTPPcontrolstheRiskRetentionInterestwhichisreflectedintheTPP’simportantrightstoreceivethecashinflowsthroughitsrighttopledgeonarecoursebasis,andsellitsinterestafterthesunsetprovisionsexpire.Therefore,webelievecondition5(b)ismet.AlternativeView:No. The ability to pledge as referenced in condition 5(b) requires that thetransferee have the ability to pledge on a recourse and non‐recourse basis.Proponents of this view note that under ASC 860‐10‐55‐27 a transferee that isprecludedfromexchangingthetransferredassetbuthastheunconstrainedrighttopledge,shouldconsiderfactsandcircumstanceonwhethercondition5(b)ismet.Sincetheparagraphreferstotheunconstrainedrighttopledge,proponentsofthisviewarguethattheabilitytopledgeonarecourse‐onlybasiswouldfailcondition5(b).OpponentstothisAlternativeViewnotethatcondition5(b)explicitlystatesthatthetransfereemustbeabletopledgeorexchange.Furthermore,paragraph169oftheBasisforConclusionsforSFAS140states“TheBoardrevisitedthe“exchangeorpledge”questionandagainindevelopingthisStatementconcludedthatthecriterioninparagraph9(b)isinclusive:itistheabilitytoobtainallormostofthecashinflows,

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eitherbyexchangingthetransferredassetorbypledgingitascollateral.”Therefore,thereissupportintheliteraturetobeabletomonetizetheassetonlythroughapledgeinordertomeetcondition5(b).Sincetherighttopledgeonarecoursebasisdemonstratesthetransferee’scontroloverthetransferredasset,opponentsoftheAlternativeViewbelievethecondition5(b)ismet.ProponentsofthisAlternativeViewalsobelievethattosubstantiateanassertionthat the TPP “can obtain all or most of the cash inflows that are the primaryeconomicbenefitsoftheasset,”theTPPmustbeabletoobtainatleast90%ofthefairvalueoftheRiskRetentionInterest(i.e.,thehaircutis10%orless)bypledgingitunderafinancing.Therationalebehindtheconceptincondition5(b)asdiscussedabovefocusesontheabilityoftheTPPtomonetizetheRiskRetentionInterest.Inthis case, theTPP is unable tomonetize theRiskRetention Interest through anoutrightsale.Accordingly,proponentsofthisviewarguethatthefinancingshouldprovide a cash inflow (proceeds) to the TPP equal to at least 90% of the RiskRetentionInterest’sfairvaluetomeetthe“allormost”threshold.OpponentstothisAlternativeViewarguethatcondition5(b)doesnotrequiretheamountofthehaircuttobe10%orlessinordertodemonstratethatthetransfereehas the right to obtain all ormost of the cash inflows of the transferred asset.Additionally,usinga90%“proceeds”testyieldsresultsthatareinconsistentwiththecontrolprincipleofASC860.ASC860isbasedontheconceptofcontrolratherthan risk and rewards. Thus, condition 5(b) is framed around the “transferee’srights topledgeorexchange”andtherefore,themoreappropriateassessmentiswhethertheTPPisrestrictedfromexercisinga“decisiveright”15thatreflectsthetransferee’scontrolovertheasset.TheTPPholdslegaltitletotheRiskRetentionInterestandhastherighttoobtainallormostofthecashinflowsthroughitsabilitytopledgeonarecoursebasis;therefore,opponentsoftheAlternativeViewbelievethattheTPPhascontrolovertheRiskRetentionInterestandcondition5(b)ismet.Further, if theTPP’s interest isconsidered in isolation, theproceedsreceived ineitherarecourseornon‐recoursefinancingoftheRiskRetentionInterestwilllikelyreflectahaircutgreaterthan10%.ThisisnotanindicatorthattheTPPdoesnothave control over the Risk Retention Interest or is unable tomonetize its cashinflows.Rather, the sizeof thehaircut is a reflectionof the credit riskinessandliquidityoftheasset.Historically,whenB‐Piecebuyerspledgedtheirinvestments,thesepledgeswereunderindustrystandardrepurchaseagreementsandwerefullrecourse.EvenwithouttheRule,RiskRetentioninterestswouldbepledgedunderthese same industry standard repurchase agreements and the repurchasecounterpartieswould expect full recourse.We do not believe therewould be asignificant difference in proceeds received between pledging a Risk RetentionInterestonafullrecoursebasisandpledgingasimilarB‐PieceinterestthatisnotsubjecttotheRule.Further,thehaircutonafullrecoursefinancingisalsoaproductof the other assets that the lender has recourse to and the credit rating of the

15Asdescribedinparagraph169totheBasisforConclusionsofSFAS140

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borrower. For example, the haircut will be impacted if there are a significantnumberofhighqualityassetsthatthelenderhasrecoursetobeyondforeclosingontheRiskRetentionInterest.Byapplyinga90%proceedstesttocondition5(b),the Alternative View introduces a co‐mingled perspective that includes othervariablesanddoesnotisolatetheassessmentofthespecifictransferredasset.Wealso note that the accounting guidance in ASC 860‐10‐40‐18(e) highlights thatilliquidityshouldnotbeafactorindeterminingwhether5(b)ismet. Therefore,using a haircut threshold to assess whether 5(b) is met runs counter to theilliquidityguidance.Insummary,theamountofproceedsreceivedinafinancingdoesnotreflecttheTPP’s right to pledge or inhibit the TPP from exercising control over the RiskRetentionInterest.Theamountofthehaircutreflectsthelender’sperceivedriskoflossfromanassetfallinginvaluewithriskiertypesofassets,suchasthelowestrated tranches of a securitization, requiring a steeper haircut. If the haircut isconsideredinassessingcondition5(b),thenriskierassetswillbeheldtoadifferentaccountingstandardthanothertypesofassetsthattypicallydonotrequirealargehaircut.WiththeexceptionofveryhighqualityassetssuchasU.S.Treasuries,ineffect,thisAlternativeViewappearstoustobeinconsistentwiththeBoard’sstatedintentinparagraph169oftheBasisforConclusionsforSFAS140thatcondition5(b) can be met either through pledge or exchange. Opponents note that theconditionin5(b)shouldinsteadcontinuetofocusonwhetherthetransfereehastherighttopledge,notonwhetherthepledgeisrecourseornon‐recourseorthepercentageoffairvaluethatcanberaised.SupportersoftheconclusioninQuestion1believenofurtheranalysisisneededandderecognition isachieved for theRetaining Sponsor.Proponents of theAlternativeViewofQuestion1wouldthenneedtoconsiderQuestion2.Question2–Isarestrictionconsidereda“constraint”forpurposesofcondition5(b)whentherestrictionisimposedbyregulation?Conclusion:No. ASC 860‐10‐40‐15 notes that “judgment is required to assess whether aparticularconditionresultsinaconstraint.”ASC860‐10‐40‐18(d)16clarifiesthataconstraint imposed by a regulatory limitation would not be considered atransferor‐imposed“constraint”undercondition5(b).TheRulegivesrise to therestriction on the TPP’s ability to sell its Risk Retention Interest. While thisregulatory constraint is contractually passed from theRetaining Sponsor to theTPP,itisaconstraintthatisimposedbylawandregulation.TherestrictionsexistwhethertheRetainingSponsorretainsaportionoftheRiskRetentionInterestor

16 ASC 860‐10‐40‐18 provides a list of conditions that would not constrain a transferee frompledgingorexchangingatransferredfinancialassetincluding:……(d)aregulatorylimitationsuchasonthenumberornatureofeligibletransferees(asinthecircumstanceofsecuritiesissuedunderSecuritiesActRule144Aordebtplacedprivately)…

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not,validatingthepointthatitisimposedbytheRuleandnotthetransferor.Wenote that in the final Rule, the Regulators specifically noted (in response toquestionsraisedonwhethertransferrestrictionsthattheRuleimposescreatedadefactoagencyrelationshipbetweenitandotherthird‐partybeneficialinterestholders for purposes of consolidation analysis under ASC 810) that “a de factoagencyrelationshipdoesnotexistsolelyasaresultofaregulatoryrestrictionimposedonan investor thatprohibits itsability to transfer,sell,orotherwiseencumber itsinterest in an entity.” We believe the Regulators’ acknowledgement that thetransfer restriction results from regulatory restrictions makes it clear that therestrictions are not transferor‐imposed and therefore should qualify suchrestrictionasaregulatory limitation that isnotaconstraintascontemplatedbyASC860‐10‐40‐18(d).AlternativeView:Yes.WhiletheRuleprovidestheRetainingSponsorwiththeabilitytouseaTPPasa means of compliance, and proponents of this view agree that regulatorylimitationsshouldnotpresumptivelybeconsidered“constraints”,analogyoftheriskretentionrequirementstotheregulatorylimitationsinASC860‐10‐40‐18(d)isnotbelievedtobeappropriate.Ina144Aoffering,whilethetypesofinvestorsare limited to qualified investors, there are a sufficient number of qualifiedinvestorsthatdonotresultinatransfereeeffectivelybeingconstrainedinitsabilitytopledgeorexchangethetransferredfinancialassetsand,thereby,realizethefulleconomicbenefitof the transferredasset. Accordingly,proponentsof thisviewbelieve that regulatory restrictionsmust still be evaluated to determine if theyconstraintheholderofthebeneficialinterestfrommonetizingitsinterestandalsoprovidemorethanatrivialbenefittothetransferor.17OpponentstothisAlternativeViewbelievethattheregulatorylimitationin860‐10‐40‐18(d) is not restricted only to those that limit the number or nature oftransferees.Itonlyusessuchfactpatternasanexampleofaregulatorylimitationwhich may have been the only example at the time the standard was written.Additionally,asnotedintheConclusionabove,theRegulatorshaveacknowledgedthedifferencebetweenrestrictionsimposedbyanagreementbetweenpartiesandregulatoryrestrictionsinthecontextofanaccountinganalysis.ThiscounterstheAlternativeViewthattherestrictionsontheTPPasaresultoftheRuleshouldbedeemedtobeimposedbythetransferorforaccountingpurposesandsupportstheviewexpressedintheConclusionthatregulatoryrestrictionsshouldnotbeviewedasa“constraint”undercondition5(b).Further,theybelievetheAlternativeViewdeviatesfromtheprinciplesetoutinASC860‐10‐40‐15,whichrequiresajudgmentbasedontheconsiderationsofallconditionscollectivelyandtakingintoaccountall relevant facts and circumstances of the transaction as discussed under theconclusionabove.17ThisissupportedbyASC860‐10‐40‐16whichsays“aconditionnotimposedbythetransferorthatconstrainsthetransfereemayormaynotprovidemorethanatrivialbenefittothetransferor.”

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SupportersoftheconclusioninQuestion2believenofurtheranalysisisneededandderecognition isachieved for theRetaining Sponsor.Proponents of theAlternativeViewofQuestion2wouldthenneedtoconsiderQuestion3.Question3 –Do the constraintsplaced on theTPPprovide theRetainingSponsormorethanatrivialbenefit?Conclusion:No.TheRetainingSponsor(asthetransferororoneofthetransferors)doesnotobtainmorethanatrivialbenefitfromtherestrictionstheRuleputsontheRiskRetentionInteresttransferredtoaTPP.BasedontherequirementsoftheRule,inorderfortheRuletobesatisfiedthroughaTPPoption,theTPPthatpurchasesandholdsaRiskRetentionInterestforitsownaccountmustfollowtherequirementsof the Rule. The restrictions are structural requirements imposed by the Ruleintended to benefit the non‐sponsor investors in a CMBS deal rather than theRetainingSponsorortheTPP.Wenotethatallparties(i.e.,allinvestors,sponsors,administrative agents, custodians, and issuers etc.) to a CMBS transaction areawareoftherestrictions.Therefore,wedonotbelieveitisappropriatetopresumethatsuchrestrictionsprovidemorethanatrivialbenefittothetransferor.Asfurtherdescribedinthebackgroundsection,theB‐PieceBuyer(nowtheTPP)wasgenerallythestandardmarketinvestorinthebottomclassofaCMBSissuancebefore the Rule was enacted and would generally hold these investments tomaturityandpayfortherighttocontrolcertainmajordecisionswithrespecttotheunderlying loans of the CMBS. Typically, the TPP as investor in the the RiskRetentionInterestcontinuestoholdtheroleofthe“controllingclass”oftheCMBSissuance,which among other rights, allows the TPP to determine the course ofactionindealingwithtroubledloans.TheexerciseoftheserightscanhaveamajoreffectontheperformanceoftheB‐PieceandtheRetainingSponsorhasnorightstoprevent or affect in anyway theTPP’s exercise of its controlling class or othervotingrights.Therefore,therestrictionsimposedbytheRulearenotinconsistentwiththeTPP’sgeneralinvestmentstrategyandclearlyarenotimposedtoprovideabenefittotheRetainingSponsor.Finally,itisimportanttoconsiderthattheRetainingSponsordoesnothavecontrolanddoesnotreceivebenefitsofownershipintheRiskRetentionInterest,astheRetainingSponsorreceivesonlycashinreturnforthetransferredfinancialassetanddoesnotretainanyeconomicbenefitintheRiskRetentionInterestorreceiveany economic benefit from the restrictions theRule puts on theRiskRetentionInterestpurchasedbytheTPP.TheRiskRetentionInterestissoldtotheTPPatfairvalueatapricethatreflectsadiscountfortherestrictionsrequiredtocomplywiththe Rule along with the value associated with holding the right to being thecontrollingclassholder.AlternativeView:

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Proponents of this view believe that a “trivial benefit” should be defined verybroadly to include theprovision in theRule thatprohibits sellingorpledgingatransferred financial asset and presumptively provides the named RetainingSponsorwithmorethanatrivialbenefit.Assuch,itcouldbeviewedthatthenamedRetainingSponsorispresumedtoreceivemorethanatrivialbenefitfromthesaleoftheRiskRetentionInterestbasedonthefollowing:(i)compliancewiththeRuleis a more‐than‐trivial benefit to the named Retaining Sponsor; (ii) the namedRetainingSponsordoesnothavetoretaintheRiskRetentionInterestonitsbalancesheetwhichwouldincurcosts(e.g.,capitalcharges);(iii)themonitoringoftheTPPallows the named Retaining Sponsor to know who is the holder of the RiskRetentionInterest;and(iv)theriskretentionrestrictionsrequiredbytheRulearedocumentedasacontractualarrangementbetweenthenamedRetainingSponsorand the TPP and therefore do not appear to be regulatory imposed. Certainproponentsof thisviewalsobelievethat if theRetainingSponsorhasanyothercontinuing involvement in the Trust, it is presumed that the any constraintprovidesmorethanatrivialbenefit.TheybelievethatthisisimpliedbecauseASC860‐10‐40‐16Aclarifiesthatifthereisnocontinuinginvolvementthancondition5(b)ismet.OpponentstothisAlternativeViewbelievethattransferorstoCMBStransactionshavenothistoricallyimposedanyconstraintsonsellingorpledgingtheB‐Pieces,presumptivelydemonstratingthatsuchconstraintswerenotdeemedvaluabletothetransferors.Infact,ifanything,therestrictionsareadetrimenttotheRetainingSponsorbecausetheyhavenoeconomicorotherreasontorestricttheTPP(absentthe Rule) and the restrictions reduce the proceeds received on sale of the RiskRetentionInterest.Moreover,asdescribedintheConclusion,theRulewasputinplace to protect the investors in the securitization not to benefit the RetainingSponsor.SupportersoftheconclusioninQuestion3believenofurtheranalysisisneededandderecognition isachieved for theRetaining Sponsor.Proponents of theAlternativeViewofQuestion3wouldthenneedtoconsiderQuestion4.Proponents of the Alternative View ofQuestion 3 believe that further analysis isnecessarytodeterminewhethertheRetainingSponsorhascontinuing involvementwith the transferred financial assets. This analysis considers whether the CMBStransaction is one transfer of recognized financial assets (namely, the RetainingSponsor’stransferoftheloancollateraltothesecuritizationtrust)or,alternatively,whetherthesecuritizationshouldbeconsideredtoconsistoftwotransfersthateachwarrantseparateanalysisunderASC860,namely(i)theRetainingSponsor’stransferoftheloancollateraltotheTrust,and(ii)theRetainingSponsor’stransferoftheRiskRetentionInteresttotheTPP.This“unitofanalysis”issueisimportantbecausetheextent and nature of the Retaining Sponsor’s ongoing involvement with thetransferredloancollateralversustheRiskRetentionInterestcouldbedifferent.

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Question4 – Is theCMBS transactionone transferof recognized financialassets(namely,theRetainingSponsor’stransferoftheloancollateraltothesecuritizationtrust)or,alternatively,shouldthesecuritizationbeconsideredtoconsistoftwotransfersthateachwarrantseparateanalysisunderASC860,namely(i)theRetainingSponsor’stransferoftheloancollateraltothetrust,and(ii)theRetainingSponsor’stransferoftheRiskRetentionInteresttotheTPP?ViewA–TwoTransfers:ProponentsofViewAbelievethatthetransferoftheRiskRetentionInteresttotheTPP should be analyzed under ASC 860 as a transfer of a separate, recognizedfinancial asset apart from the transfer of the loans to the securitization trust.Proponents of this view acknowledge that, typically, derecognition analysesinvolvingsecuritizationsconsiderbeneficial interests issuedcontemporaneouslywiththesetransactionsnotasseparatetransferssubjecttoASC860,butratherasoneelementof thederecognitionanalysis that isperformedwith respect to thesecuritized (transferred) financial assets. This perspective is implicit in thecondition 5(b) “look‐though” approach previously discussed. However, in thisparticular case,proponentsofViewAbelieve that thereareunique factors thatwarranttreatingtheDepositor’ssaleoftheRiskRetentionInteresttotheTPPasatransferofa financialasset thatwarrantsa standaloneanalysisunderASC860,separate anddistinct from theRetaining Sponsor’s derecognition analysis of itsconveyanceoftheloanstothesecuritizationtrust.Thesefactorsinclude:

Thecontractual relationshipbetween theRetainingSponsorand theTPPstems,ultimately, fromregulatoryrequirements. Absent theRule, theB‐Piecebuyerwouldnotbesubjecttoanyrestrictions.Therestrictionsdonotextendtoanyoftheotherinvestorsinthesecuritizationofwhicheacharefreetopledgeorexchangetheirinterests.

TheRetaining Sponsor and theTPP are both responsible for performingloanlevelduediligenceonthesecuritizedassets.Thisuniquerelationshipresults in the TPP, although not a transferor of these loans, effectivelyservingasanindependentre‐underwriteroftheunderlyingloansintendedtobesecuritized,andnotatypical“thirdparty.”

ASC 860 does not appear to contemplate fact patterns whereby one

beneficial interest holder is constrained from pledging or exchanging itsasset,butotherbeneficial interestholdersarenot.ProponentsofViewAbelieve that to conclude that one constrained beneficial interest holdershouldcausetheentireunderlyingtransfertobereportedasafinancingisnot representationally faithful and is not consistent with the underlyingconceptsofcontrolinASC860.Accordingly,itisappropriatetoevaluatetheDepositor’ssaleof theRiskRetentionInterest to theTPPandtherelatedrestrictions, as a discrete transfer and the accounting treatment of this

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transfershouldnotaffecttheRetainingSponsor’sderecognitionanalysisoftheloanstransferredtotheTrust.

With respect to securitizations more broadly, if the transferor acquiredbeneficialinterestsasproceedsfromasecuritization,andinturnsoldthosebeneficial interests in a future period, such transfer would likely beevaluatedasadiscretetransactionsubjecttoASC860,providedtherewasaholdingperiodofconsequence.

ItisimportanttonotethatproponentsofViewAdonotconsiderittorepresentanimplicit“partialsale”accountingmodel.Rather,thetransferoftheloancollateral,assuming it otherwise meets the conditions for sale accounting, would beaccounted for consistentwith thederecognitionmeasurementprinciples inASCSubtopic 860. Accordingly, the Retaining Sponsor would recognize the RiskRetentionInteresttobesoldtotheTPPatfairvalue.TheRetainingSponsorwouldthenseparatelyevaluatethesaleoftheRiskRetentionInteresttotheTPPunderASC860.Proponents of View A also observe that the Retaining Sponsor could retain aconstrained5%RiskRetentionInterestinthesecuritizationandstillde‐recognizeitsloans.Therefore,itisillogicalthattransferringallorsomeofthisRiskRetentionInteresttoaTPP,leavingtheRetainingSponsorwithlessofaneconomicinterestintheTrust,shouldprecludederecognitionofitstransferredloans.ProponentsofViewAwouldassesswhetherthereiscontinuinginvolvementintheRiskRetentionInterestsoldtotheTPPwithoutconsiderationas towhethertheRetainingSponsorhascontinuinginvolvementinthecashflowsofthetransferredloansthroughitsotherRiskRetentionInterestsheldinanL‐shapestructure(i.e.,holdaportionoftheverticalinterest).ViewB–OneTransfer:Proponents of ViewBbelieve you should “look through” theDepositor and theTrust,andthetransactionshouldbeevaluatedinitsentiretyasasingletransaction;beneficial interests held at closing by each “third party holder” must meet therequirements of condition 5(b) to derecognize the transferred loans to thesecuritization. Proponents believe View B is consistent with the generalrequirement in ASC 860 that when evaluating transfers of financial assets allseparate transactions entered into contemporaneously must be considered.18Therefore, proponents of View B would assess whether there is continuinginvolvementinthecashflowsofthetransferredloans.ProponentsofViewBpointoutthat,tocomplywithRule,theTPPmustacquiretheRiskRetentionInterestatthesecuritizationtransaction’sclosingand,further,the

18ASC860‐10‐40‐4

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Depositor’ssaleoftheRiskRetentionInteresttotheTPP(aswellasthesaleoftheTrust’sremainingbeneficialintereststootherinvestors)constituteexchangesthatmustoccurfirsttopermittheunderlyingloancollateraltopotentiallyqualifyforderecognitionunderASC860 (because theRiskRetention Interest is createdaspartofthesecuritization).Assuch,theyarguethattheDepositor’ssaleoftheRiskRetentionInteresttotheTPPdoesnotinvolvethetransferofarecognizedfinancialassetunderASC860and,assuch,shouldbeanalyzedasintrinsictotheRetainingSponsor’stransferoftheloancollateral,thesoletransfersubjecttoASC860.Theseproponentsbelievethat,althoughtheconstrainingarrangementsbetweentheTPPandtheRetainingSponsorarearguablyunique,thatdoesnotalterthefactthattheRiskRetentionInterestconveyedtotheTPPisnotarecognizedfinancialasset,andtherefore to analyze that exchange separately under the lens of ASC 860 isinappropriate.ForproponentsofViewAinQuestion4,condition5(b)ismetifthetransferorand its consolidatedaffiliateshaveno continuing involvement in theRiskRetentionInterest.DoestheRetainingSponsorhavecontinuinginvolvementintheTPPRiskRetentionInterest?Conclusion:No.ASC860‐10‐40‐16Aisclearthatthecondition5(b)ismetwhenthetransferorhas no continuing involvement with the transferred financial assets; even ininstanceswherethetransferee(beneficialinterestholder)is“significantlylimitedin itsability topledgeorexchange the transferredassets.”Wedonotbelieve theRetaining Sponsor in this fact pattern has continuing involvement in the RiskRetentionInterestsoldtotheTPP,asdefinedbyASC860.WenotethattheMasterGlossary defines continuing involvement as “any involvement with thetransferredfinancialassetsthatpermitsthetransferortoreceivecashflowsorotherbenefits that arise from the transferred financial assets or that obligates thetransferor toprovideadditionalcash flowsorotherassets toanypartyrelated tothetransfer.”Further,theexamplesofcontinuinginvolvementincludedinASC860‐10‐55‐79B19 and ASC 860‐10‐05‐4 while not all inclusive, entirely relate tocontinuinginvolvement inthecashflowsofthetransferredfinancialassets.TheRetainingSponsor’sonlyinvolvementintheRiskRetentionInterestsoldtotheTPPis monitoring the TPP’s compliance as required by the regulation20 and theRetaining Sponsor has no continuing involvementwith the cash flows or otherbenefitsthatarisefromtheRiskRetentionInterest.Wefurtherbelievethattoviewthetransferrestrictionsandtherelatedongoingmonitoringofsuchrestrictionsascontinuinginvolvementseemscircularandwouldcallintoquestiontheneedforcondition5(b)tolimitconstraintsontheabilitytopledgeorexchangeatransferred

19Examplesofcontinuing involvement included inASC860‐10‐55‐79B:servicingarrangements,recourseorguaranteearrangements, agreements to repurchaseor redeem transferred financialassets, options written or held, derivative instruments, arrangements that provide financialsupport,pledgesofcollateral,thetransferorsbeneficialinterestinthetransferredfinancialasset.20Section§244.7(c)“Dutytocomply”putstheresponsibilityofcompliancewiththeriskretentionrulebytheTPPonthesponsor.

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financial asset to transfers where the transferor has continuing involvement.Therefore,condition5(b)ismetandtheRetainingSponsormayderecognizetheRiskRetentionInterest.AlternativeView:Yes. Proponents of the Alternative View believe that continuing involvementshouldbedefinedverybroadlybeyondwhatisdescribedintheMasterGlossary,for example, that the obligation tomonitor theTPP’s compliancewith theRulewhich creates exposure to a potential penalty for non‐compliance is a form ofcontinuing involvement. While the Rule does not specify any penalty for non‐compliance,proponentsofthisviewlooktotheRegulator’sauthoritytoexercisesanctionsorpenaltiesagainstthenamedRetainingSponsorunderthe1934ActofwhichtheRuleisapartof.ProponentsofthisAlternativeView,followingthepathofthedecisiontree,mayconcludeat thispoint, that theuseof theTPPOptionwouldresult incontinuedrecognitionoftheRiskRetentionInterestsoldtotheTPP.Asnotedpreviously,opponentstothisAlternativeViewobservethatmonitoringdoesnotinvolverightstotheongoingcashflowsofthetransferredRiskRetentionInterest and there is no stated penalty or known action for non‐compliance;thereforetheydonotbelievethattheobligationtomonitortheTPP’scompliancewith the Rule meets the definition of continuing involvement in the MasterGlossary.ForproponentsofViewBinQuestion4,condition5(b)ismetifthetransferorand its consolidated affiliates have no continuing involvement in thetransferred financial assets. Does the Retaining Sponsor have continuinginvolvementwiththeunderlyingloans?Conclusion:Yes, theRetaining Sponsor has continuing involvement in the cash flows of theloansunderlyingtheCMBSissuanceifbeneficialinterestsinthesecuritizationareheldforriskretentionpurposes.InanL‐shapestructure,theverticalRiskRetentionInterest held by the Retaining Sponsor meets the definition of continuinginvolvement in the Master Glossary. Proponents of this view, having strictlyfollowedtheAlternativeViewsinQuestions1‐3ofthedecisiontree(seeAppendix3), conclude that the named Retaining Sponsor21 is required to continue torecognizetheloanstransferredtoanL‐shapesecuritizationonitsbalancesheet.However, for horizontal structures, as described in the conclusion toViewAofQuestion4, theRetaining Sponsordoesnothave continuing involvement in thecashflowsorothereconomicbenefitsthatarisefromtheunderlyingloansthrough21TransferorsotherthanthenamedRetainingSponsormayreachadifferentoutcomeasaresultoftheirconsiderationwhethertherestrictionsundertheRuleprovidedthemwith“morethanatrivialbenefit”(seeQuestion3)

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the holding of beneficial interests. Condition 5(b) is met with respect to thetransferredloansandtheRetainingSponsormayderecognizethetransferredloansfromitsbalancesheet.Itshouldbenotedthat ifoneconcurswithanyof theConclusionsreachedwithrespecttoQuestions1‐3ofthedecisiontree,thenthenamedRetainingSponsor’scontinuing involvement in the underlying loans would not have caused thetransactiontobeaccountedforasasecuredborrowed–i.e.,condition5(b)wouldhavebeenmet.AlternativeView:Similar to the proponents of the Alternative View in View A of Question 4,proponents of this Alternative View advocate for a broader view of continuinginvolvement beyond what is described in the Master Glossary. For example,proponentsofthisviewbelievethattheobligationtomonitortheTPP’scompliancewiththeRuleisaformofcontinuinginvolvement.Theyalsonotethatintheeventa TPP fails to comply with the Rule, the named Retaining Sponsor may incurmonetarydamagesorotherpenaltiesleviedbytheRegulators.Followingthepathof the decision tree (see Appendix 3), proponents of the Alternative Viewmayconclude at this point that the use of the TPPOption in either an L‐shape or ahorizontal structurewould result in a form of continuing involvementwith theunderlyingloans.Therefore,proponentsoftheAlternativeViewarticulatedwithrespect toQuestions 1‐3 of the decision tree (seeAppendix 3), conclude that anamedRetainingSponsorisrequiredtocontinuetorecognizetheloanstransferredtobothL‐shapeandhorizontalsecuritizationsonitsbalancesheet.Asnotedpreviously,opponentstothisAlternativeViewobservethatmonitoringofcompliancewith a regulatory‐imposed constraint doesnot involve rights to theongoingcashflowsofthetransferredassets;therefore,theydonotbelievethattheobligationtomonitortheTPP’scompliancewiththeRulemeetsthedefinitionofcontinuinginvolvementintheMasterGlossary.Further,sanctionsorpenaltiesthatthe Retaining Sponsor may incur as a result of the TPP’s non‐compliance areexogenoustotheRiskRetentionInterest.SummaryConclusion:Insummary,therearemultipleindependentpathstoaconclusionthatcondition5(b)doesnotprecludede‐recognitionoftheloanssoldintothesecuritizationandtheRiskRetentionInterestsoldtoaTPP(eitherfullhorizontalorusingtheL‐shapestructure).Whileweacknowledgethatsomemaygivemoreorlessweighttoeachof the arguments, we believe that notwithstanding the regulatory restrictionsimposed on the TPP, and considering all of the arguments put forth, it isappropriate toconclude theRetainingSponsorhasmet the requirementsunderASC860‐10‐40‐5(b)forde‐recognitionofthetransferredloansandRiskRetentionInterestpostsecuritizationwhenusingaTPPOptionineitherahorizontaloranL‐shapestructure.

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Appendix 2 - Structure Chart

3rd

Party Seller(s) Bank A

(Retaining Sponsor)

Depositor

Trust

Underwriter Investors

B-Piece Buyer (Third Party Purchaser or

TPP)

95% non‐risk retention 

95% non‐risk retention 

B‐Piece 3% TPP Risk Retention 

LoanLoan

Loan 100% Certificates

2% vertical risk retention 

Note: For simplicity, cash legs are excluded

3rd

Party Seller(s) Bank A

(Retaining Sponsor)

Depositor

Trust

Underwriter Investors

B-Piece Buyer (Third Party Purchaser or

TPP)

95% non‐risk retention 

95% non‐risk retention 

5% TPP Risk Retention Interest

LoanLoan

Loan 100% Certificates

Note: For simplicity, cash legs are excluded

HorizontalStructure

L‐ShapeStructure

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Appendix 3 - Decision Tree

Question 1: Is 5(b) met if the TPP is able to pledge on a full recourse basis but is constrained from pledging on a non-recourse basis or exchanging its Risk Retention Interest?

Question 3: Do the constraints placed on the TPP provide the Retaining Sponsor more than a trivial benefit?

Question 2: Is a restriction considered a “constraint” for purposes of 5(b) when the restriction is imposed by regulation?

860-10-40-5(b) condition not met for the named Retaining Sponsor –

transfer is accounted for as a secured borrowing. Other

transferors into the securitization may have a different outcome under

Question 3.

860-10-40-5(b) condition met –

transfer is accounted for as a sale, if other criteria are met

Yes

Yes

View A: Two Transfers

Yes

No

No

No

View B: One Transfer

Question 4: Is the CMBS transaction one transfer of recognized financial assets or, alternatively, should the securitization be

considered to consist of two transfers that each warrant separate analysis under ASC 860?

Does the Retaining Sponsor have continuing

involvement with the underlying loans?

Does the Retaining Sponsor have continuing involvement in the TPP Risk Retention Interest?

No

Yes

Yes

No