10 September 2010CMBS Market Watch Weekly
CMBS August Credit Update
60+day delinquencies continued to flatten in August with the bucket increasing by just 6bpto 7.58%.
This is a record low monthly ”increase” since the beginning of credit crisis;however, it is not without a precedent: a similar drop was observed last summer with only9bp of increase in August 2009 (Exhibit 2). Increased loan resolutions (via liquidationsand modifications) are helping to subdue the headline delinquency rate.While this comes as good news, we remain cautious on calling for a peak in the number of loans with credit impairments. Indeed the pipeline of potential 60+ day delinquenciesmeasured by 30-day delinquent and performing specially serviced loans (PSS) increasedfrom 4.29% to 4.42%. This increase comes after three months of decreases andsubstantially mitigates the improvements in the 60+ bucket.
Exhibit 2: 60+Day Rate Flattens but Trouble Loans Continue to Increase
2 5 b p s 7 1 b p s * 5 1 b p s 4 0 b p s 2 3 b p s 6 b p s
A u g 0 8 S e p 0 8 O c t 0 8 N o v 0 8 D e c 0 8 J a n 0 9 F e b 0 9 M a r 0 9 A p r 0 9 M a y 0 9 J u n 0 9 J u l 0 9 A u g 0 9 S e p 0 9 O c t 0 9 N o v 0 9 D e c 0 9 J a n 1 0 F e b 1 0 M a r 1 0 A p r 1 0 M a y 1 0 J u n 1 0 J u l 1 0 A u g 1 0
D l q R a t e ( % )
C h an g ei n 6 0 + Dl qR a t e ( b p s )
30+Days Dlq or Performing Specially Serviced (PSS) %60+Days Dlq%
Source: Credit Suisse, Trepp.*46bps of the 71bps increase in March 2010 was due to the Peter Cooper/Stuyvesant Town loan.
Exhibit 3 is one of our favorite charts in which to examine 60+ delinquency rate changes:the chart shows the monthly inflow/outflow of loans used in the 60+day delinquency ratecalculation. The green bars show loan resolutions for worked out/cured loans and the redbars show liquidations; both categories would reduce the numerator used in the monthlydelinquency rate calculation. The blue bars show inflows of fresh new delinquencies.This month, $2.8 billion of 60+ loans became less than 60+ days delinquent. In addition,$1.3 billion of the 60+ loans either paid off or were liquidated (Exhibit 3). Those are recordto date; however, sampling through the data it appears that a large fraction of the loansimproving this month have either been oscillating in and out of 60+ in the past or aredisplaying temporarily higher cash flows
. It is also interesting to note that we had a similar pickup in 60+ improvements last August, with a reversion to lower levels during thefollowing months.
The August remittance reports reflect July performance.
See CMBX delinquencies below for two examples of loans that improved without waving credit loss risk.
60+ daydelinquencies roseby 6bp to 7.58%