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Rating Action:

Moody's Downgrades Two and Affirms Three CMBS Classes of LaSalle 2007-MF5

Global Credit Research - 16 Sep 2010

Approximately $391.0 Million of Structured Securities Affected

New York, September 16, 2010 -- Moody's Investors Service (Moody's) downgraded the ratings of two classes and affirmed three classes of LaSalle Commercial Mortgage Securities Inc., Series 2007-MF5. Moody's rating action is as follows:

US $361.7982M, Cl. A Certificate, Downgraded to C (sf); previously on Jan 28, 2010 Downgraded to Caa2 (sf)

Cl. X Certificate, Downgraded to C (sf); previously on Jan 28, 2010 Downgraded to Caa2 (sf)

US $9.155M, Cl. B Certificate, Affirmed at C (sf); previously on January 28, 2010 Downgraded to C (sf)

US $13.428M, Cl. C Certificate, Affirmed at C (sf); previously on January 28, 2010 Downgraded to C (sf)

US $8.545M, Cl. D Certificate, Affirmed at C (sf); previously on January 28, 2010 Downgraded to C (sf)

RATINGS RATIONALE

The downgrades are due to higher expected losses for the pool resulting from realized and anticipated losses from specially serviced loans. The classes that Moody's affirmed are all rated C based on realized losses and our current base expected loss.

This transaction is classified as a small balance CMBS transaction. Small balance transactions, which represent approximately 1% of the Moody's rated conduit/fusion universe, have generally experienced higher defaults and losses than traditional conduit and fusion transaction

Moody's analysis reflects a forward-looking view of the likely range of collateral performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that falls outside an acceptable range of the key parameters may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated during the current review. Even so, deviation from the expected range will not necessarily result in a rating action. There may be mitigating or offsetting factors to an improvement or decline in collateral performance, such as increased subordination levels due to amortization and loan payoffs or a decline in subordination due to realized losses.

Primary sources of assumption uncertainty are the current stressed macroeconomic environment and continuing weakness in the commercial real estate and lending markets. Moody's currently views the commercial real estate market as stressed with further performance declines expected in the industrial, office, and retail sectors. Hotel performance has begun to rebound, albeit off a very weak base. Multifamily has also begun to rebound reflecting an improved supply / demand relationship. The availability of debt capital is improving with terms returning towards market norms. Job growth and housing price stability will be necessary precursors to commercial real estate recovery. Overall, Moody's central global scenario remains "hook-shaped" for 2010 and 2011; we expect overall a sluggish recovery in most of the world's largest economies, returning to trend growth rate with elevated fiscal deficits and persistent unemployment levels.

The principal methodology used in rating LaSalle 2007-MF5 is "CMBS: Moody's Approach to Small Loan Transactions" published on December 15, 2004". Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website. In addition, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.

Moody's review incorporated the use of the excel-based CMBS Conduit Model v 2.50 which is used for both conduit and fusion transactions. Conduit model results at the Aa2 level are driven by property type, Moody's actual and stressed DSCR, and Moody's property quality grade (which reflects the capitalization rate used by Moody's to estimate Moody's value). Conduit model results at the B2 level are driven by a paydown analysis based on the individual loan level Moody's LTV ratio. Moody's Herfindahl score (Herf), a measure of loan level diversity, is a primary determinant of pool level diversity and has a greater impact on senior certificates. Other concentrations and correlations may be considered in our analysis. Based on the model pooled credit enhancement levels at Aa2 and B2, the remaining conduit classes are either interpolated between these two data points or determined based on a multiple or ratio of either of these two data points. For fusion deals, the credit enhancement for loans with investment-grade underlying ratings is melded with the conduit model credit enhancement into an overall model result. Fusion loan credit enhancement is based on the underlying rating of the loan which corresponds to a range of credit enhancement levels. Actual fusion credit enhancement levels are selected based on loan level diversity, pool leverage and other concentrations and correlations within the pool. Negative pooling, or adding credit enhancement at the underlying rating level, is incorporated for loans with similar underlying ratings in the same transaction.

Moody's ratings are determined by a committee process that considers both quantitative and qualitative factors. Therefore, the rating outcome may differ from the model output.

The rating action is a result of Moody's on-going surveillance of commercial mortgage backed securities (CMBS) transactions. Moody's monitors transactions on a monthly basis through two sets of quantitative tools -- MOST® (Moody's Surveillance Trends) and CMM (Commercial Mortgage Metrics) on Trepp -- and on a periodic basis through a comprehensive review. Moody's prior full review is summarized in a press release dated January 28, 2010. Please see the ratings tab on the issuer / entity page on moodys.com for the last rating action and the ratings history.

Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past 6 months.

As of the August 20, 2010 distribution date, the transaction's aggregate certificate balance has decreased by 20% to $391.0 million from $488.3 million at securitization. The Certificates are collateralized by 323 mortgage loans ranging in size from less than 1% to 1.3% of the pool, with the top ten loans representing 11% of the pool. The pool has a Herfindahl (Herf) score of 212 compared to 224 at Moody's last review.

Ninety-four loans, representing 25% of the pool, are on the master servicer's watchlist. The watchlist includes loans which meet certain portfolio review guidelines established as part of the CRE Finance Council (CREFC) monthly reporting package. As part of our ongoing monitoring of a transaction, Moody's reviews the watchlist to assess which loans have material issues that could impact performance.

Thirty-six loans have been liquidated from the pool, resulting in an aggregate realized loss of $30.8 million (74% loss severity on average). These losses have resulted in the elimination of Classes E through N and a 22% principal loss on Class D. Currently, there are 41 loans, representing 16% of the pool, in special servicing. The master servicer has recognized an aggregate $30.9 million appraisal reduction for the specially serviced loans. Moody's has estimated an aggregate $45.6 million loss for the specially serviced loans (74% expected loss on average). Moody's rating action reflects a cumulative base expected loss of 18% of the current balance.

The pool has also experienced significant interest shortfalls. Based on the most recent remittance statement, Classes B through N have experienced cumulative interest shortfalls totaling $2.66 million. Moody's anticipates that the pool will continue to experience interest shortfalls because of the high exposure to specially serviced loans. Interest shortfalls are caused by special servicing fees, including workout and liquidation fees, appraisal subordinate entitlement reductions (ASERs) and extraordinary trust expenses.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics' information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating. However, the credit rating action was based on limited historical financial data.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Juan Acosta
Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Sandra Ruffin
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

Moody's Downgrades Two and Affirms Three CMBS Classes of LaSalle 2007-MF5
No Related Data.
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