Commercial Mortgage Backed Securities – Loan Defaults Pass 10%

Source: Rebel Traders

The latest report from Fitch Ratings …

Cumulative Loan Defaults for U.S. CMBS Pass 10%

Fitch Ratings’ U.S. CMBS cumulative default rate for fixed rate commercial mortgage loans increased to 10.6% as of the end of third quarter 2010, a 112 basis point (bp) movement from last quarter and 401 bps from its year end 2009 study.

Loans continue to default at a record pace, with large loans driving the trend. Hotel and office properties were the largest contributors to defaults this past quarter.

Loan defaults for this year are already at $21.66 billion, surpassing 2009 levels ($17.75 billion) by loan balance. The number of loan defaults through 3Q10 (1,452) is almost equal 2009 figures (1,464).

Three vintages had cumulative default rates move by 100 bps or more from the second quarter to the third. The 2005 vintage saw the largest increase with a 200 basis point move, followed by 2007 with 196 bps, and 2000 with 163 bps increase. The 2005 and 2000 vintages saw large increases due to loans defaulting at their five and ten-year maturities, respectively.

The property types with cumulative default rates increasing by more than 100 bps were hotel and office at 286 and 115, respectively. The largest three defaults in 3Q10 were Innkeepers Portfolio ($825 million hotel, 2007 vintage); One Alliance Center ($165 million office, 2007 vintage); and Highwoods Portfolio ($160 million office, 2005 vintage).

Fitch Ratings currently has $26.9 billion of its fixed-rate CMBS bonds on Rating Watch Negative and an additional $42 billion with Negative Outlooks, anticipating further negative rating migration. The agency’s default study tracks loans in the fixed-rate conduit universe. The total universe represents fixed-rate deals issued between 1993 and 2010, totaling $539.3 billion. Loans are considered defaulted if they have been reported 60 plus days delinquent at least once. The cumulative default rate is expected to grow at increasing rates due to further expectation for defaults, coupled with limited issuance over the past few years. Fitch Ratings expects to update key statistics in its CMBS conduit loan default study on a quarterly basis.

Or as CNBC would say… “All is well”

Commercial Mortgage Backed Securities – Loan Defaults Pass 10% is a post from: Rebel Traders – Stock Market and Economic Analysis

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