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Rating Agencies: CMBS Pain Still Increasing

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Commercial mortgage-backed securities delinquencies may peak at 12% in 2012, up from about 4.7% at the end of 2009, according to Fitch Ratings.

Rating analysts at Moody’s Investors Service, New York, are also expecting to see the CMBS delinquency rate increase, but they are expecting to see life insurers weather the storm, according to a team of analysts in the New York office of UBS Investment Research, New York.

The overall U.S. CMBS delinquency rate has climbed from about 0.9% in December 2008, and from less than 0.3% in December 2007, Fitch says.

Fitch based its December 2009 figures on an analysis of a list of 2,143 commercial mortgage loans that are at least 60 days delinquent or in foreclosure.

“Though delinquencies have increased approximately 5 times from a year ago, they may not peak until 2012,” Mary MacNeill, a Fitch managing director, says in a statement. “An increased amount of loans are coming due over the next 2 years that will result in delinquencies possibly peaking at 12%.”

December 2009 delinquency rates for specific types of CMBS ranged from 2.7% for office building CMBS to 9.1% for hotel CMBS. The multifamily CMBS delinquency rate was about twice as high as it was in December 2008, and the hotel CMBS delinquency rate was about 12 times as high, according to Fitch.

The picture probably will get uglier, because of the many large commercial mortgage loans made in 2006 and 2007, when standards were especially loose, and the current lack of access to refinancing loans, Fitch says.

The UBS analysts, led by Andrew Kligerman, recently participated in a conference call with Moody’s analysts that covered the CMBS situation.

Moody’s expects commercial mortgage loan losses to increase to 3% to 10% in the next 2 to 3 years, compared with valuation reserves of about 0.4 percentage points to 0.5 percentage points, the UBS analysts write.

But “Moody’s thinks life industry’s CML exposure seems manageable and is in ‘relatively good shape’ (vs. banks),” the UBS analysts write.