CMBS Liquidity Questioned

Default rates on commercial MBS could hit 6% by yearend as the recession finally takes its toll on the performance of commercial and multifamily properties, the president of the Commercial Mortgage Securities Association said Tuesday. CMSA chief president Patrick Sargent noted that the default rate (loans 60 days or more past due) generally averages 50 basis points. "Now we are starting to see these default rates go up to 3% and 4% and by yearend they could perhaps go up to 5% or 6%," he said on CNBC. The CMBS default rate rose nearly 100 bp to 2.39% in the second quarter from the first quarter, according to Trepp LLC data. CMSA's main focus is to bring liquidity back into the CMBS market, Mr. Sargent said. He noted the Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF) has been helpful so far but noted that it will take more time to be effective. The Fed has already extended the TALF program for newly issued CMBS by six months to June 30. "We would like to see TALF extended [again] if it makes sense after next June," Mr. Sargent said.