“I’ve failed over and over again in my life, and that is why I succeed.”
Michael Jordan
MORNINGSTAR – CMBS Research –
Executive Summary
With the May remittance, the delinquent unpaid balance for commercial mortgage-backed securities, or CMBS, continued its ongoing
decline to a trailing 12-month low of $33.98 billion (4.55%), down from
$34.42 billion (4.59%) a month prior. This marks the 12th straight month of
decline and the sixth consecutive month that the overall delinquent unpaid
balance has been reported below $40 billion, a low point not seen since
October 2009 (at $32.55 billion). Correspondingly, the delinquency rate itself
had not fallen below 5.0% since November 2009 (at 4.71%) and now has
been reported below this threshold for four consecutive months. Meanwhile,
a monthly decline has now been reported in 24 of the past 29 remittance
cycles since January 2012. While roughly $1.36 billion in newly delinquent
loans were reported with the May 2014 remittance, a slightly higher $1.78
billion in loan resolutions (including loan payoffs, liquidations, and returns to performing status) were also reported, resulting in a net decrease to the delinquent unpaid balance. This includes a direct impact from high monthly liquidations by balance in May 2014 for the
fourth consecutive month, totaling $1.28 billion across 83 loans, at an average loss severity of 44.3%. Otherwise, the May 2014 delinquency figure remains down substantially year-over-year, from a high of $49.65 billion (6.71%) as of May 2013, while a net decrease was noted in three of the five delinquency categories through May 2014 (the 30-day and foreclosure categories each
reflected an increase). In aggregate, the distressed categories of 90-day, foreclosure and REO decreased for the 10th consecutive month, down by $197.02 million in May. The two most distressed categories of foreclosure and REO, however, combined to increase by $54.06 million in May (up to $23.68 billion). Despite such increase, they have actually decreased by $7.10 billion year-over-year (down by 23.07% from $30.78 billion in May 2013).
Forecast
The delinquent unpaid balance for CMBS and corresponding percentage continue to be impacted by the size and amount of loan
liquidations, modifications, extensions and resolutions reported on a monthly basis and are clearly on a road to recovery. These items,
along with an active pipeline for new issuance CMBS, should lead to a further decline in delinquency levels in 2014. Based upon an updated trailing 12-month analysis of the movement in delinquent unpaid balance from loan workouts and liquidations, as well as the
total outstanding CMBS universe of deals under review (which continues to grow more rapidly from new issuance versus legacy deal pay down), we now project that the delinquent unpaid balance for CMBS may decrease as low as $20 billion to $25 billion by year-end,
with a corresponding delinquency rate well below 4%. Outside of any major macroeconomic events, the numerator / denominator effect on this forecast hinges on multiple parts, including continued monthly liquidations at the current rate and size (e.g., repeated mass liquidations of distressed debt and timing of loss realization similar to the recent the CWCapital auction), further issuance of new CMBS according to market expectations (near $100 billion for 2014), and the ongoing maturity payoff rate remaining fairly constant through the end of 2014. On the other hand, a pending 2015 maturity bubble should not be ignored in any long-term evaluation.
Pdf.
Monthly Delinquency Report – June 2014 (May 2014 Remittance)
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Walter Unger CCIM
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