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Global Credit Research - 21 Mar 2012
New York, March 21, 2012 -- The weighted average loss severity for loans in US commercial mortgage-backed
securities (CMBS) liquidated at a loss was 41.0% in the
fourth quarter, up from 39.7% in the third,
and the highest severity since the inception of Moody's quarterly
US CMBS Loss Severities report. Excluding those with "de
minimis" losses (of less than 2%), the historical weighted
average loss severity for all liquidated loans was 52.6%,
up from 52.1% in the third quarter.
Moody's quarterly US CMBS Loss Severities report tracks loan loss
severities upon liquidation and cumulative deal losses in US CMBS conduit
and fusion transactions. Moody's tracks loss severities to improve
its estimates of loss given default and enhance the accuracy of its forward-looking
ratings. The quarterly report tracks loss severities in the 1998
to 2008 vintages based on liquidations from 2000 through fourth-quarter
Loan liquidations accelerated in 2011, as the total balance of loans
liquidated rose 39% to $14.6 billion, while
the number of loans liquidated rose 12%, primarily because
of a surge in liquidations in the 2006 and 2007 vintages, to $7.61
billion, from $3.45 billion in 2010.
"The fourth quarter of 2011 marked the third consecutive quarterly
increase in cumulative loss severity," says Keith Banhazl,
a Moody's Vice President and Senior Credit Officer. "But
we think that, rather than indicating further deterioration in real
estate fundamentals, the increases over the previous three quarters
are due to changes in the vintage composition of the loans liquidated."
The increased share of liquidations from the troubled 2006-2008
vintage group, which has a loss severity rate of 51% versus
30% for earlier vintages, is pressuring the cumulative loss
severity across all vintages. The 2006-2008 vintages have
the highest loss severities: 2006, 50.8%;
2007, 51.6%; and 2008, 55.5%.
The three vintages comprise 57.1% of CMBS collateral and
71.1% of delinquent loans.
Loss severities for loans liquidated after maturity default were significantly
lower than for loans that defaulted during their term. For liquidated
loans from the 2004-2007 vintages, the weighted average loss
severity for maturity defaults was 12.4%, compared
to 52.9% for term defaults.
With regard to property types, loans backed by hotel properties
had the highest weighted average loss severity, 46.2%;
those backed by retail, the second-largest, 45.1%;
those backed by office properties had the lowest, 36.4%.
Retail was the only major property type for which loss severity rose.
Loss severities declined year over year for all of the top ten metropolitan
statistical areas by loss amount, other than New York's,
which rose slightly to 22.5% from 21.3%.
However, of the ten areas with the highest dollar losses,
New York's 22.5% was the lowest severity, while
Detroit's was the highest, at 58.1%.
The report, "US CMBS Loss Severities, Q4 2011 Update,"
is available at www.moodys.com. In addition,
Moody's publishes a weekly summary of structured finance credit,
ratings and methodologies in "Structured Finance Quick Check" at www.moodys.com/SFQuickCheck.
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VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
Senior Vice President
Structured Finance Group
Moody's: US CMBS loss severities increase in fourth quarter
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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