Fitch: Special Servicers Maintain Impressive Workout Rate for CMBS

Special servicers resolved $63.5 billion in distressed commercial mortgage-backed securities (CMBS) loans in the 18 months from January 2010 to June 2011, according to a report released Wednesday by ""Fitch Ratings."":http://www.fitchratings.com/web/en/dynamic/fitch-home.jsp
[IMAGE] This amount is more than three-fourths the amount resolved between 2007 and 2009, according to Fitch.

Fifty-five percent of the $63.5 billion total was modified and returned to master servicers, and 30 percent was returned to performing status without a modification.

""It is too early to determine what effect these modifications will have on final CMBS loan resolutions,"" said Fitch managing director Stephanie Petosa.

Fitch reports that the recovery rate for CMBS loans resolved by special servicers since 2007 is 86 percent.

CMBS loans with a higher balance - those averaging $28.3 million - are more likely to be modified than

[COLUMN_BREAK]

liquidated, whereas lower balance loans - those with an average balance of $4.1 billion - are more likely to be liquidated.

Loans with higher balances generally spent less time in special servicing â€" about 12 months â€" as opposed to lower-balance loans, which spent about 14 months in special servicing.

Measured by number of loans, the three most common liquidation methods in order of prevalence are note sales, discounted payoffs, and paid in full.

Discounted payoffs accounted for 22 percent of liquidations and had a recovery rate of 72.8 percent from January 2010 to June 2011.

Paid in full also accounted for 22 percent of liquidation methods. The method also accounted for 16 percent of total resolutions.

REO liquidation and foreclosure sales accounted for 26 percent of liquidations and 18 percent of resolutions.

""Special servicers are still wading through a formidable backlog of underperforming loans that are in need of a workout,"" Petosa said.

While special servicers continue to experience success resolving CMBS loans, Fitch notes one shortcoming. Many of the CMBS loans returned to performing status lack current financial data.

“This lack of information leaves investors in the dark with respect to the property’s performance,” Fitch stated last week.