SEP 27, 2013 11:58am ET

Lack of Current Appraisals in CMBS Delinquencies ‘Material’

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Master servicers are consistently finding a “material” lack of current appraisals in delinquent commercial mortgage-backed securities loans, according to a Fitch report Friday.

“Approximately 10% of the loans delinquent since yearend 2012 or earlier do not have current valuations, notwithstanding expectations special servicers obtain updated valuations annually,” Fitch said Friday, noting that 10% is too high, and levels of 5% or less would be more reasonable.

“When current valuations are not available, master servicers may make more conservative advancing decisions or in some cases may create a potential for over-advancing,” the company said.

“In a recent survey of master servicers, Fitch Ratings found active master servicers had lowered their advancing thresholds to 40%-60% of recent valuations from historical ranges of 60%-80% due to value uncertainties over the past four years.”

Fitch said, “In certain cases delaying or not releasing the outcome of an appraisal may have merit. Litigation with a borrower may necessitate a special servicer ordering an appraisal through legal counsel in order to maintain confidentiality.”

Fitch Ratings said it will “continue to engage and monitor special servicers’ progress of obtaining recent valuations and may take actions in instances where a servicer is not obtaining valuations required by pooling and servicing agreements.”

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