Magazine article Mortgage Banking

CMBS Modifications Will Continue for Up to Three Years

Magazine article Mortgage Banking

CMBS Modifications Will Continue for Up to Three Years

Article excerpt

Resizing commercial mortgage-backed securities loan maturities, and in many cases defaults, will continue for the next 24 to 36 months while delinquencies increase for at least another year, according to Amherst Securities Group LP, Austin, Texas.

Darrell Wheeler, senior managing director and head of CMBS strategy at Amherst, said resizing loans to "more reasonably leveraged levels" will include 2006 and 2007 CMBS vintages that had some type of subordinate debt, which kept floating-rate CMBS trusts relatively safe throughout the recession. Nearly 42 percent of all 2007 fixed-rate CMBS loans had subordinate debt as well, he said.

"As we go through de-leveraging the CMBS market, a lot of this performance is coming from the fact that there was a bit of a buffer built into the CMBS transaction itself," Wheeler said.

However, upcoming maturities remain a major challenge for the CMBS market as delinquencies likely move higher in the next year.

"We do expect that the upward move in delinquencies will continue as we move through the maturity schedules of these yields, and it is not out of the question to expect a delinquency rate of over 12 percent by 2012," Wheeler said. "There is no question we are going to see delinquencies stack up in the various deals."

While most maturities this year came from five-year loans issued in 2005, next year's five-year loans consist of $18 billion issued in the 2006 vintage and $26 billion in five-year loans from 2007.

The loan coupon rates carry 5. …

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