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Moody's: US CMBS loss severities increase in fourth quarter

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 2011.

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.

*****

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

Keith Banhazl
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Tad Philipp
Senior Vice President
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's: US CMBS loss severities increase in fourth quarter
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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