The delinquency rate on loans included in US Commercial Mortgage Backed Securities (CMBS) increased by 31 basis points in February to 5.73%, according to Moody’s.
“This month’s increase was relatively mild compared to the 44 basis point increase the DQT averaged over the previous five months,” said Moody’s Managing Director Nick Levidy.
Of particular note was a drop of two basis points to 5.22% in the delinquency rate of retail loans, the first decline in the delinquency rate in that sector since November of 2007.
This was largely the result of the fact that 45 loans totaling $780 billion that were delinquent as of the end of January became current, worked out or disposed of in February.
Among other property types, hotel loans saw the largest increase in delinquency, 82 basis points, to stand at 10.64%, multifamily saw the second largest climb rising 59 basis points to 9.36%, office property delinquencies increased 45 basis points to 3.98%, and the industrial property DQT currently stands at 4.28%, following a 40 basis point jump, breaking the 4% threshold for the first time.
For details, see US CMBS: Moody’s CMBS Delinquency Tracker, March 2010 (Premium)
Technorati Tags: CMBS, commercial-real-estate, mortgage-backed-securities, REIT, structured-finance
Moody’s takes a look at the residential mortgage market in Spain in a new report. While it too early to accurately determine final recovery rates, the initial findings are worrisome.
Selected excerpts:
There is some uncertainty in Spain regarding how recoveries of non-performing mortgage loans are going to unfold as the adverse economic cycle progresses. This is exacerbated by the
lack of visibility of the market price of properties during the current recession and of the level and time at which prices will settle after the recession.
To better understand the drivers of loss severity and trends, Moody’s has obtained loan-by-loan recovery data from 59 Spanish Residential Mortgage-Backed Securities (RMBS) deals amounting to 26,626 cases of loans entering arrears 90 day between 1997 and August 2009.
Arrears 90 day severity has increased rapidly since 2006 from an historical low average of 5.8% severity with around nine months recovery lag during the benign cycle (1997 to 2005). For loans that entered arrears 90 day in Q1 2008 (the latest date analysed to give a minimum of 1.5 years of observation period for recoveries), the current average severity is 46.2% with a nine month recovery lag.
However, once the ongoing recovery processes are complete, the final severity could improve to a level around 11% with the recovery lag increasing to 21 months, based on a simplified assumption on future recoveries with 30% house price decline peak-to-through from Q1 2008 to Q3 2011 and net from interest accrued and foreclosure costs. The average severity and recovery lag for loans that do not cure or refinance will be higher than the levels shown above and are a better indication of severity on foreclosure. Based on the same assumption for future recoveries as above, the severity for non-cured and non-refinanced loans that entered arrears 90 day in Q1 2008 was calculated at 17.7% with an average recovery lag of 31 months.
We expect final recoveries for loans that entered arrears in 2008 and 2009 to show even more stressed results. At present, the observation period is too short to draw any conclusions on these vintages.
For details see: Recovery Trends In Spanish RMBS (Premium)
Technorati Tags: mortgage-backed-securities, RMBS, Spain, structured-finance
Investors’ default rate forecasts for collateral in nearly all classes and vintages of U.S. residential mortgage-backed securities have risen dramatically in Standard & Poor’s Fixed Income Risk Management Services’ latest quarterly survey, while predictions for European mortgage default rates have fallen across all classes and vintages with the exception of Spain.
Twelve-month default rate expectations on certain U.S. RMBS collateral have doubled since the previous quarterly survey, with U.S. 2007 Alt-A pay option ARM RMBS collateral default rate predictions rising to 25% from 12% polled in Q3.
For the same vintage, U.S. prime fixed-rate collateral default forecasts rose to 5.75% from 4.00%; U.S. prime adjustable-rate collateral default forecasts moved up to 10.50% from 6.25%; and U.S. subprime collateral default forecasts increased to 34.36% from 23.00%.
By contrast, 12-month forecasts for U.K. nonconforming loan RMBS collateral default rates across an average of vintages fell to 4.61% from 9.00% polled in Q3; for prime U.K. mortgage default rates, the 12-month average forecast for all vintages fell to just 1.09% from 2.00%; forecasts for Italian and Dutch mortgage default rates dropped to 1.21% and 1.32%, respectively, while Spanish mortgage default expectations were stable at 2.80%.
For details, see FIRMS Survey Says Investors Expect European RMBS Mortgage Performance To Improve But U.S. Collateral To Deteriorate (Premium)
Technorati Tags: Alt-A, Italy, mortgage defaults, mortgage-backed-securities, Netherlands, RMBS, Spain, structured-finance, subprime-mortgage, UK
UK RMBS peformance to suffer if £300bn in gov’t aid isn’t replaced with private capital (Moody’s via FTAlphaville)
Tougher financial regulations not coming fast or easy for SEC’s Mary Schapiro (WashPost)
US Q4 2009 Mortgage loan delinquency rate increased for 12th straight quarter to 6.89 percent (TransUnion)
US CMBS deliquency rate posts record rise to to 5.42% in Jan from 4.5% inDec (Moody’s via FT Alphaville)
Stanford study provides further evidence suggesting many companies tweak earnings to meet investor expectations. (WSJ)
Another blow for bipartisanship: Top Pharma lobbyist resigns after criticism of his support for health care reform (WSJ)
Technorati Tags: financial-regulation, mortgage-backed-securities, pharma
U.S. prime jumbo loan performance continued to weaken in January as serious delinquencies rose for the 32nd consecutive month, according to Fitch Ratings.
Although prime jumbo loan delinquencies began to rise in the second quarter of 2007, they accelerated in 2009 nearly tripling over the course of the year. Florida saw the biggest monthly jump of the five states with the highest volume of jumbo loans outstanding.
The new year has brought no relief from declining jumbo loan performance. The trend line for delinquencies indicates the 10% level could be reached as early as next month. – Managing Director Vincent Barberio
Overall, prime jumbo RMBS 60+ days delinquencies rose to 9.6% for January (up from 9.2% for December 2009). While delinquency rates on earlier vintages (pre-2005) remain well below that of recent vintages, more seasoned pools have experienced significant deterioration over the past year with 60+ days delinquencies increasing from 1.8% to 4.3%. While less than 5% of prime jumbo senior RMBS classes issued prior to 2005 have been downgraded to date, approximately 40% currently have a Negative Rating Outlook as a result of the weakening collateral performance.
For details, see Fitch’s RMBS Performance Metrics (Premium)
Technorati Tags: jumbo mortgages, mortgage-backed-securities, RMBS, structured-finance
Good roundup of commentary on Obama big bank proposals at The Big Picture
Temp jobs generally lower workers’ employment and income prospects over time (MIT study)
Treasury Weighs Fixes to Foreclosures Program (NYT) … but measures may just prolong foreclosure crisis
ETF assets have grown from near zero to more than $1 Trillion in 10 years (The Economist via @graubart)
VentureSource: VC industry ends 2009 with strong 4Q; Annual investment down 31% from 2008
They’re back: ratings agencies reviewing new private-label jumbo mortgage securities offerings
Listen to Joseph “Freefall” Stiglitz beat up on the big banks for an hour on The Diane Rehm Show
Which governments are really at risk of bankruptcy?
Risky business is back in style: high-yield corporate debt issuance reaches record $11.7 billion in latest week
Commercial real estate investment has risen by more than 40% in Europe in the past quarter
Sign of tougher FDA action: Reversing itself, FDA expresses concerns over health risks from BPA plastic
Technorati Tags: big banks, BPA, commercial-real-estate, ETF, foreclosures, jobs, junk-bonds, mortgage-backed-securities, venture-capital
Losses on 2008 vintage to exceed 12% as future loss severity averages 50%.
Moody’s now expects cumulative lifetime loss projections for US prime jumbo residential mortgage backed securities (RMBS) of 3.8% for 2005 securitizations, 8.0% for 2006 securitizations, 10.9% for 2007 securitizations and 12.3% for 2008 securitizations.
“Since our previous loss projections published in March2, serious delinquencies (defined as loans that are 60 or more days delinquent, in foreclosure, or held for sale, i.e. real estate owned or REO) on prime jumbo pools for the 2005, 2006, 2007 and 2008 vintages have increased substantially to 3.3% from 2.2%, 6.2% from 3.8%, 7.9% from 4.8% and 8.0% from 4.6%, respectively. We expect delinquencies and losses on prime jumbo pools to continue to rise in 2010 as house prices continue to decline and unemployment levels continue to rise. In the previous loss projection update we expected these key macroeconomic variables to moderate by the end of 2009. ”
The rapidly deteriorating performance of prime jumbo pools combined with continued adverse macroeconomic conditions prompted this revision.
“The loss upon default (severity of loss) on jumbo loans has also been rising in the last year. As house prices continue to depreciate, future loss severities are expected to reach around 50% on average, putting further pressure on loss expectations.”
“Further, recent government efforts to curb loan defaults and foreclosures through loan modification have thus far failed to gain the previously expected traction3, prompting us to reduce the average modification benefit to projected prime jumbo losses across vintages from 15% predicted earlier to less than 5% going forward.”
For details, see Prime Jumbo RMBS Loss Projection Update: January 2010 (Premium)
Technorati Tags: jumbo mortgages, mortgage delinquencies, mortgage-backed-securities, prime mortgages, RMBS, structured-finance
CDOs, CMBS and Spanish consumer and RMBS transactions most at risk of downgrade.
Fitch Ratings says today that while the tentative global macro-economic recovery is positive for the European structured finance sector, unemployment is still rising in many European countries and therefore scope for deterioration in European structured finance asset performance remains.
“It is too early for Fitch to change its overall negative rating sentiment for European structured finance,” says Philip Walsh, Managing Director in the EMEA structured finance team at Fitch Ratings. “However, as we have seen so far in the recession, rating downgrades are likely to be focused on junior tranches. The main exceptions to this have been CMBS and Structured Credit where downgrades across the rating spectrum have been more common.”
The rating Outlook is Negative for all classes of CDO, reflecting the drag that macro-economic conditions are exerting on the various types of reference entities in CDO portfolios.
Fitch expects Spanish RMBS to remain under pressure over the next 12-24 months due to the ongoing correction in the housing market, tighter credit conditions and the sharp increase in unemployment. While these factors will continue to drive higher arrears and defaults across portfolios, the agency believes that RMBS transactions backed by recent vintage collateral (post-2005) and higher risk attributes remain the most vulnerable in the downturn.
The UK has suffered the most significant reduction in commercial real estate values out of the main European markets funded by CMBS. Investor sentiment towards UK commercial property has improved recently, however, due to comparatively attractive yields, especially relative to other asset classes. Prime yields have rebounded quite quickly causing a surge in property returns during the fourth quarter 2009, although it has been limited to prime assets. Refinance risk continues to loom on existing transactions across Europe, including the UK, and could cause further ratings declines on specific portfolios.
For details see EMEA Structured Finance Sector Outlook – January 2010. (Premium)
Technorati Tags: CMBS, Europe, mortgage-backed-securities, RMBS, Spain, structured-finance
Rising defaults among all property types led to a 42 basis point increase in U.S. CMBS delinquencies to close out 2009 at 4.71%, according to the latest Loan Delinquency Index results from Fitch Ratings.
‘Though delinquencies have increased approximately five times from a year ago, they may not peak until 2012′, said Managing Director Mary MacNeill. ‘
An increased amount of loans are coming due over the next two years that will result in delinquencies possibly peaking at 12%.
Of the five main property types, each has seen an increase in delinquencies of over 195% since December 2008, ranging from multifamily with 196% increase, to hotel, with a 1,175% increase. Delinquency rates for these properties are as follows (along with total dollars delinquent versus total dollars delinquent as of December 2008):
–Office: 2.66% ($3.9 billion vs. $603.5 million); –Hotel: 9.13% ($4.6 billion vs. $363.7 million); –Retail: 4.25% ($5.7 billion vs. $1.2 billion); –Multifamily: 7.54% ($5 billion vs. $1.6 billion); –Industrial: 3.57% ($851.3 million vs. $186.2 million).
Due to the increased volume alongside weaker underwriting parameters for later vintages, defaults increased significantly from the end of 2008. The four most-recent vintages have gone from representing just over half of delinquencies by balance to over 75% of the total at the end of December.
Details available here.
Technorati Tags: CMBS, commercial delinquencies, commercial-real-estate, mortgage-backed-securities
Standard & Poor’s Ratings Services has released its most recent assessment of projected principal recoveries for residential mortgage-backed securities (RMBS) in prime, Alt-A, and subprime transactions. These show that in the most likely scenario, subprime securities would return two thirds of their original value, while Alt–Securities would return almost 80%.
Released today are 756 selected securities that originally rated ‘AAA’ but have since downgraded to ‘CCC’ or ‘CC’ from the 2005, 2006, and 2007 Alt-A vintages.” The results of our recovery analysis on the securities released today show an average principal recovery of 59.3% of a security’s current balance and 69% of a security’s initial par value (inclusive of principal already received) in a ‘A’ rating stress scenario. Similarly, under a ‘B’ expected case scenario, our recovery results show an average of 70.5% of a security’s current balance and 77.7% of a security’s initial par value.”
In total, S&P has performed recovery analysis on 1,297 Alt-A securities representing an initial aggregate par value of $139,678,435,332 and an aggregate balance outstanding of $99,716,617,365 (as of the stated performance date), and 680 subprime securities representing an initial aggregate par value of $115,493,410,000 and an aggregate balance outstanding of $76,370,072,818.
The average projected principal recovery for Alt-A securities released to date show a 62.2% recovery of a security’s current balance and 70.7% recovery of a security’s initial par value (inclusive of principal already received) in a ‘A’ rating stress scenario. Under a ‘B’ expected case scenario, our recovery results for Alt-A securities show an average recovery of 72.5% of a security’s current balance and 78.8% of a security’s initial par value.
Similarly, the average principal recovery for all subprime securities released to date show a 43.5% recovery of a security’s current balance and 52.2% recovery of a security’s initial par value in a ‘A’ rating stress scenario. Under a ‘B’ expected case scenario, our recovery results for subprime securities show an average recovery of 60.5% of a security’s current balance and 66.0% of a security’s initial par value.
For tables of specific securities, see Standard&Poor’s U.S. RMBS Recovery Analytics Update: Selected 2005, 2006, And 2007 Vintage Prime, Alt-A, And Subprime Transactions (Premium)
Technorati Tags: Alt-A, mortgage-backed-securities, RMBS, subprime-mortgage
