Offsetting Risks, Credit Positives Stabilize CMBS


A recent Moody’s Investors Service report found that securitized commercial mortgage credit quality in the fourth quarter of last year was largely the same as it was in the previous quarter, but that there was a mix of risks and credit positives that produced that stability.

“On the one hand, there were some underwriting factors that were better like fewer IO loans and more reserves. On the other hand there was a shift to collateral in smaller markets, and we have found that in smaller markets, if a loan defaults, you could have a higher severity,” said Moody’s senior vice president Tad Philipp in a phone interview.

The percentage of interest-only loans in CMBS dropped to 22.7% in the fourth quarter of 2011 from 33.7% in the third quarter of that year.

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