Deconstructing the Commercial Mortgage Market

IDD Magazine (06/23/08); Rozens, Aleksandrs
The credit crisis has altered the packaging of commercial mortgages into bonds, leading investors to predict a decline in commercial mortgage-backed securities (CMBS) to between $20 billion and $30 billion in 2008 from more than $200 billion last year. Write-downs of these securities by Wall Street banks and dealer firms have been higher than warranted by default rates, which have not increased significantly; but Fitch Ratings managing director Susan Merrick believes write downs have more to do with volatility than credit quality. As issuance of these securities declines, hedge funds, insurance companies, banks and other portfolio lenders are offering short-term loans. Standard & Poor's analyst Larry Kay expects CMBS delinquencies to increase for mortgages written from 2005 to 2007, with retail properties likely showing the most weakness.