CMBS Foreclosure, REO Increases Continue in May

MBA (7/3/2008 ) Murray, Michael
Commercial mortgage-backed securities balances on foreclosures and real estate owned (REO) properties increased for the seventh consecutive month, based on a June report from Realpoint Research, Horsham, Pa.
The report said foreclosure and REO loan balances increased from $1.33 billion in April to $1.36 billion, despite monthly liquidations.

"These figures had declined steadily for some time, reflective of expedited loan workouts, but continue to be replenished with new loans due to aggressive special servicing workout plans—evidence of further liquidations on the way," the report said.

Delinquent unpaid CMBS balances dropped nearly 21 percent from January 2005 through May of this year, but the drop was less than 1 percent from January 2006 with a 56 percent increase in delinquencies from January 2007.

The delinquent unpaid balance for CMBS during the trailing-12 months averaged $3.07 billion, with $6.49 billion in CMBS liquidations realized since January 2005, the report said. During this time, 83 percent of the liquidated balance was replaced by newly-reported delinquent loans.

"The rate at which liquidated or problematic CMBS credits are replenished by newly delinquent loans remains a concern, especially regarding delinquency degradation to foreclosure and REO status [evidence of additional liquidations on the horizon for 2008]," the report said.

Realpoint said the increase in delinquent unpaid balance and delinquency ratio since March 2007 reflects "a slow but steady increase from historic lows through mid-2007."

However, more than 41 percent of delinquent unpaid balance through May 2008 came from transactions issued in 2005 and 2006, with nearly 21 percent of all delinquency found in 2006 transactions.

"Increased delinquency for the more recent 2005 through 2007 vintages remains our primary concern as a result of current market conditions and possible aggressive underwriting. We now expect the delinquent unpaid CMBS balance to continue along its current trend but to level off somewhere between $4 billion and $4.25 billion by the end of 2008," the report said.