U.S. CMBS credit performance strong. (Commercial).

ACCORDING TO CREDIT PERFORMANCE OF U.S. Commercial Mortgage-Backed Securities, a December report by Standard & Poor's Rating Services, New York, the credit performance of commercial mortgage-backed securities (CMBS) has been particularly strong over nearly the past decade, suggesting that pooled commercial mortgages have been carefully underwritten with unique credit performance characteristics.

The S&P report provides the results of a study that examined, as of September 2002, the cumulative principal losses and the potential future losses of 237 pools of multiborrower CMBS issued in the United States that were rated by one or more of the three U.S. rating agencies between 1994 and mid-2002. The minuscule losses that the pools have incurred so far, along with their potentially more significant but still limited losses in the future, demonstrate the strong credit performance of CMBS, according to the article.

The study also conducts a multiple-regression analysis of the determinants of cumulative losses of pools. The loss was found to be positively associated with pool characteristics, such as original loan-to-value (LTV) ratio, the spread of mortgage note rate over the 10-year Treasury yield, age and the maturity term of the underlying mortgages. Other important features, such as debt service coverage ratio and the size of original pool balance, however, were not significantly related to losses.

According to the article, with the lagging impact from the anemic economic recovery, delinquencies are expected to escalate and more significant losses are in the cards for CMBS. The article is available at www.ratingsdirect.com and at www.standardandpoors.com.