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CMBS: BlackRock Defines "Bad"

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Outside financial firms have been updating the National Association of Insurance Commissioners (NAIC) on efforts to model the performance of mortgage-backed securities (MBS).

The NAIC, Kansas City, Mo., has been trying to reduce reliance on the credit rating agencies in assessments of insurers’ MBS holdings by hiring Pacific Investment Management Company L.L.C. (PIMCO), Newport Beach, Calif., to model the performance of residential MBS and BlackRock Inc., New York, to model the performance of commercial MBS.

PIMCO has noted that it uses proprietary loan-level models to set loss expectations. At the end of the third quarter, peak-to-trough housing price drops ranged from just 11.2% in Dallas, with a 4.7% recent rebound, to 57% in Las Vegas, with a rebound of just 0.3%.

BlackRock gives estimated peak-to-trough values for scenarios ranging fron “aggressive” to “most conservative.”

In the most conservative scenarios, prices are still falling today and the trough might not occur until early 2014. The CMBS price drop from the peak to the end of 2015 might be 46%.

In the cheeriest, most aggressive scearios, the trough occurred earlier this year, and prices at the end of 2015 will be down just 9% from the peak.


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