Fitch: U.S. CMBS Default Rates - How Low Can They Go?CHICAGO -- Recent concerns surrounding the increased concentration of interest-only (IO) loans and more volatile assets in recent U.S. CMBS CMBS See: Commercial Mortgage Backed Securities vintages are not expected to adversely affect loan default rates and loss severities in the short term, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. . Defaults and loss severities are expected to continue trending downward reflecting the improving state of the commercial property markets and a fairly stable economic environment, according to the rating agency in a new report. The Fitch-rated CMBS bond annual default rate in 2005 fell to 0.40% after hovering between 0.80% and 0.85% in 2002 through 2004. Fitch expects the CMBS bond and loan default rates to decline even further in 2007, according to Senior Director Patty Bach. 'Although CMBS default rates will be more sensitive to future economic downturns given the higher concentration of more volatile property types and assets securitized securitized Of, related to, or being debt securities that are secured with assets. For example, mortgage purchase bonds are secured by mortgages that have been purchased with the bond issue's proceeds. in recent CMBS vintages,' said Bach. The majority of esoteric assets have thus far been securitized in single borrower transactions since not all CMBS investors are comfortable with these new assets and their unique risks. 'However, if esoteric assets become more widely accepted by the investor community, their presence in multiborrower transactions will rise,' according to Bach. The increase of esoteric assets financed via CMBS contributes to Fitch's projection for U.S. CMBS issuance in 2007 ($240 billion, a 20% jump from the $200 billion estimated for 2006), with the sector's growing share of commercial real estate financing and numerous refinance Refinance 1. When a business or person revises their payment schedule for repaying debt. 2. Replacing an older loan with a new loan offering better terms. Notes: When a business refinances they typically extend the maturity date. and defeasance opportunities remaining as the primary catalysts. 'U.S. CMBS 2007 Outlook' is available on the Fitch Ratings web site at www.fitchratings.com. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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