Moody’s: Rate of loss on liquidated on commercial loans backing securities surged in 2nd-qtr
By APThursday, August 12, 2010
Moody’s: Rate of loss on CMBS surged in 2Q
NEW YORK — The rate of loss on liquidated U.S. commercial property loans pooled into securities climbed in the second quarter, Moody’s Investors Service said Thursday.
Between April and June, 342 loans were liquidated for a loss, boosting the current historical weighted average loss severity rate to 35.4 percent from 34 percent, the firm said.
Moody’s senior analyst Keith Banhazl said he expects the loss severity rate of commercial mortgage-backed securities to continue to rise as more loans originated between 2006 and 2008 are liquidated.
“For loans from these vintages, lax underwriting standards, the absence of amortization and other loan structural features, historically low capitalization rates, current reduced market liquidity and the general impact of the economic downturn will likely fuel higher loss severities,” Banhazl said.
Commercial-mortgage backed securities are pools of commercial real estate loans that are packaged and sold to investors.
Between Jan. 1 and June 15, some $3.2 billion of debt was liquidated, an increase of $2.6 billion over the same period in 2009, Moody’s said.
More than $742 million of debt was liquidated in April alone.
Loans backed by health care properties have the highest weighted average loss severity at a rate of 61 percent, Moody’s said.
Loans on office properties, meanwhile, have the lowest average loss severity at a rate of 31 percent.
