Securitizations that involve commercial mortgages are increasingly dropping loans from their pools before the final transactions close, according to Fitch Ratings.
In 28 deals that Fitch rated during a 12-month period ending June 30, about 1,000 loans were dropped from the final CMBS issuance. That represented about 30% of the final transaction amount.
The number of loans dropped from the issuance is a sharp increase over past cycles, Fitch said. However, in the 28 deals examined, most of the loans dropped from the CMBS were for less than $20 million.
"The numerous loan drops could indicate a lack of lender due diligence prior to sending the initial loan information to ratings agencies," Fitch said in a news release.
If the trend continues and the size of the dropped loans rises above $20 million, that could have a significant impact on deal metrics, including credit enhancement, Fitch said.
