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Trepp, Fitch Report Drop in CMBS Delinquencies, Moody’s Sees Increase

Posted By Carrie Bay On November 11, 2010 @ 7:53 pm In Market Studies,Secondary Market | No Comments

Reports from three different agencies paint distinct pictures of the rate at which loans held in commercial mortgage-backed securities (CMBS) are going bad. Two tracked declines in the CMBS delinquency rate for the[IMAGE]month of October â€" one says it's the first drop in over a year, the other says it's the first in nearly three years â€" and the third claims delinquencies are still rising on commercial mortgages.

In line with the company's forecast last month, ""Trepp LLC"":http://www.trepp.com says the U.S. CMBS delinquency rate fell in October, marking the first month-to-month drop recorded by the firm in more than a year.

Trepp's market data shows that the percentage of loans 30 or more days delinquent, in foreclosure, or REO fell 47 basis points last month to 8.58 percent, putting the value of delinquent CMBS loans at $58.3 billion. The company notes in its report, though, that this compares to a delinquency rate of just 4.8 percent in October 2009.

""We have been saying for months that loan refinancings, note sales, and liquidations would be putting downward pressure on the delinquency rate, and this is precisely what happened in October,"" said Manus Clancy, Trepp's managing director.

Clancy continued, ""The biggest single driver in October was the final resolution of the huge Extended Stay Hotels loan which accounted for 59 basis points in the delinquency reduction. We anticipate that once the Stuyvesant Town loan is resolved, there will be another 40 basis points worth of delinquencies removed in one fell swoop.""

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According to the latest market update from ""Fitch Ratings"":http://www.fitchratings.com, for the first time in 33 months, U.S. CMBS loan delinquencies declined in October, with a large assist from hotels.

CMBS delinquencies dropped 88 basis points to 7.78 percent in Fitch's report due largely to the resolution of seven loans, the largest of which was the liquidation of the $4.1 billion Extended Stay loan, collateralized by a portfolio of 682 hotel properties. At the same time, only $304 million of hotel-backed loans became newly delinquent during the month of October, according to Fitch.

""Whereas hotel-backed loans saw the most rapid performance deterioration, now the opposite is true,"" said Mary MacNeill, managing director, Fitch Ratings. ""Hotel loans are now well positioned to recover quickly when business and consumer spending resume and the economic recovery gains traction.""

""Moody's Investors Service"":http://www.moodys.com was the big dissenter. The agency says it recorded a 15 basis point jump in CMBS delinquencies last month to 8.39 percent. The increase was almost the same as the 14 basis point increase reported by Moody's in September and marked the fifth consecutive month of what the firm's analysts called ""modest growth"" in the rate.

Moody's says in October, 282 loans totaling $3.45 billion became newly delinquent, while 211 previously delinquent loans totaling approximately $2.82 billion became current, worked out, or disposed. In all, the total number of delinquent loans increased in October to 4,042, and the total balance of delinquent loans increased by approximately $627 million to $52.7 billion, according to Moody's analysis.

""The increased pace of loans leaving delinquency has helped moderate the delinquency rate, but the potential for monthly spikes continues to exist due to the large number of troubled CMBS loans on the watchlist and in special servicing,"" said Moody's Managing Director Nick Levidy.

Hotels and multifamily properties claim the highest delinquency rate among property types in all three agencies' reports.


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