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Fitch: delinquency numbers heading higher for CMBS, CREL CDOs.

Specially serviced commercial mortgage-backed securities loans in the United States increased to $74 billion by the end of last year, up from a $4.4 billion low at the end of 2007, said Fitch Ratings.

In its CMBS Year End 2009 Servicing Update: Resolution Trends, Special Servicing Loan Volume & Staffing Levels report, Fitch said CMBS special servicers resolved nearly $8.7 billion last year--11 percent of special ser-vicing's full balance.

While CMBS servicers resolved more than 50 percent of loans in 2009 compared with 2008, a substantial increase in special servicing volume caused resolutions to fall from 31 percent to 11 percent last year. An 87 percent overall average recovery rate in 2008 dropped last year because of more distressed assets, lack of liquidity and declining property values, Fitch said.

"Recoveries on loans with losses are down markedly compared to prior years," said Stephanie Petosa, managing director at Fitch. "The health of the property, the borrower and the credit markets will dictate how successful the remedies are at keeping loans out of special servicing."

More than 50 percent of unpaid principal balance CMBS transferred to special servicing because of imminent default, and three-quarters of modified specially serviced loans were sent back to master servicers as performing or paid-in-full with nearly no losses.

However, Fitch said it remains to be seen whether these modifications will prevent a return to special servicing.

Fitch said delinquencies fell from 13 percent to 12.5 percent in January for U.S. commercial real estate loan collateralized debt obligation (CREL CDO) delinquencies.

Despite declines, however, extensions, restructurings or resolutions-at-a-Ioss brought 15 new delinquencies that nearly equalled loans removed from Fitch's delinquency index. The delinquency index reflects delinquent loans for 60 days or longer, matured balloon loans and the current month's repurchased assets.

While 33 of 35 Fitch-rated CREL CDOs reported delinquencies in February, a 1.3 percent to 40.6 percent range, 15 CREL CDOs were failing at least one overcollateralization test--two more CDO overcollateralization (OC) failures than in January.

Failure of OC tests leads to cutoff interest payments to subordinate classes, including preferred shares typically held by CDO asset managers. Fitch said asset managers extended loans and disposed of troubled assets, which resulted in a slight decline in delinquencies for January.

"Resolved loans have lowered the delinquency rate even as losses continue to climb," said Karen Trebach, senior director at Fitch. "Extended and restructured loans also have lowered the delinquency rate, yet the credit characteristics of many restructured loans remain questionable."

The ratings agency forecasts delinquency increases for this year after nearly $41.8 million in realized losses for February. The largest single loss in February was $26.6 million from the severely discounted payoff of a long defaulted B-note secured by a development site.

Fitch anticipated a 25 percent cumulative delinquency rate for loans resloved at a loss by year-end. CREL CDO realized losses are at nearly 4.6 percent of Fitch's 35 CREL CDOs in its rated universe, which includes 1,100 loans and 350 rated securities/assets at $23.8 billion.

Michael Sorohan is editor, Michael Murray is editorial manager and Carolyn Kemp is a contributor for MBA Commercial/Multifamily NewsLink. To subscribe, visit
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Comment:Fitch: delinquency numbers heading higher for CMBS, CREL CDOs.
Author:Sorohan, Michael
Publication:Mortgage Banking
Geographic Code:1USA
Date:Apr 1, 2010
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