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'03 Stressed CMBS Loan Performance

The most stressful year for commercial mortgage loans since the early '90s was 2003, according to a Standard & Poor's study of commercial mortgage loans.

The rating agency reports that defaults among commercial mortgage loans originated between 1993 and 2002, and rated by S&P, reached a total of 399 for last year.

This also represents 30% of all S&P-rated mortgage loans that defaulted as of Dec. 31, 2003.

However, the study found that credit support levels for "existing CMBS transactions are at comfortable multiples of the expected base-case loss."

Joseph Hu, managing director of research in the S&P structured finance group, noted, "Going forward, the study results imply that the credit performance of newly originated loans will be more resilient. The base-case loss is also likely to be substantially lower than those of the older vintages."

The current study of about 30,000 mortgage loans updates a previous S&P study covering 28,593 commercial mortgage loans over a period between January 1993 and March 2003, extending the period of the study to December 2003.

Loans backed by health care and lodging properties continue to be the worst performing, the study finds, with updated cumulative default rates of 14.9% and 19.88%, respectively. Office property-backed loans saw defaults rise to 2.57%.

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