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Losses on CMBS Loan Liquidations Climb in Q2: Moody’s

Posted By Carrie Bay On August 12, 2010 @ 7:32 pm In Loss Mitigation,Market Studies,Secondary Market | No Comments

The severity of losses on liquidating loans backing U.S. commercial mortgage-backed securities (CMBS) exceeded[IMAGE]their historical average in the second quarter, ""Moody's Investors Service"":http://www.moodys.com says in a new report.

During Q2, the New York-based credit ratings agency says the 342 commercial real estate loans liquidated for a loss had a weighted average loss severity of 42.8 percent, 740 basis points higher than the current 35.4 percent weighted average.

""We anticipate that the cumulative loss severity rate will continue to rise from 35.4 percent as more loans from the

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2006-2008 vintages of CMBS are liquidated at relatively higher loss severities,"" said Keith Banhazl, Moody""s VP and senior analyst.

Banhazl went on to explain, ""For loans from these vintages, lax underwriting standards, the absence of amortization, and other loan structural features, historically low capitalization rates, current reduced market liquidity, and the general impact of the economic downturn will likely fuel higher loss severities.""

From January 1, 2010, through June 15, 2010, a total of $3.2 billion of debt underwent liquidations, Moody's says, a $2.6 billion increase over the same period in 2009. April 2010 recorded the highest amount of liquidations by current deal balance, with over $742 million of debt affected.

Moody's reports that loans backed by healthcare properties have the highest weighted average loss severity at 61 percent, while loans backed by office properties have the lowest average loss severity at 31 percent.

The ratings agency's update on CMBS loss severities covers all outstanding conduit and fusion U.S. CMBS transactions, whether they are or are not rated by Moody's.


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