CMBS Rebound Problematic

Defaults on commercial mortgage- backed securities (CMBS) will triple this year to an all-time high, according to reports by Fitch and Standard and Poor’s.  Standard & Poor’s sets the bar even higher, saying it could even reach 3.5 percent by year-end.  CMBS defaults accelerated 17% from between January and February.    http://www.housingfinance.com/aft/articles/2009/may-jun/0509-upfront-hits-and-misses.htm

Contrary to residential mortgages, CMBS mortgages typically do not amortize but instead refinance every 3 or 10 years.  Loans are repaid with similar new loans.  Most of the loans written over the past 5 years were at 90% of value.  With plummeting values, many of those loans will not be rewritten.  More than 60% of the loans written the last 5 years, about $800 billion are expected to have problems renewing.  More info here, http://www.reuters.com/article/marketsNews/idUSN2834138520090528

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