CMBS Risk Higher but Below Peak: S&P

Mortgage & Real Estate









An index shows commercial mortgage-backed securities’ macroeconomic and underwriting risk has risen, but is “not anywhere close” to its apex, a Standard Poor’s researcher said at a conference Thursday.

An index that measures this risk historically on a scale of 67 (least risky, in the 2010 vintage) to 146 (most risky, in the 2007 vintage) was up 11 points from 2013 at 103 in the third quarter, according to a recent report that Howard Esaki, global head of structured finance research, co-authored.

These risks are rising, but “very slowly,” Esaki told attendees at SP’s U.S. commercial real estate briefing Thursday.

The index measures underwriting variables that can lead to eventual securities losses, such as debt service coverage ratios and loan-to-value ratios, Esaki said. These variables historically have influenced how likely borrowers are to make the mortgage payments that get passed on to CMBS investors.

Among the macroeconomic factors the index also measures because they also could influence borrower payment risk are unemployment, and commercial and multifamily debt relative to gross domestic product.

CMBS are currently in a “good” macro period, Esaki said.


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