Loss severities on U.S. commercial mortgage-backed securities have reached 45%, according to Fitch, which said this is a point at which they could plateau.
Resolution rates could become higher if property markets stabilize further this year, the ratings agency said. Fitch found the number of resolutions was up close to 14% in 2011 at 1,620 loans totaling $19.6 billion, compared to 1,427 loans totaling $19.4 billion the previous year.
Among the uncertainties going forward is that there are some modifications within the 46% of loans “resolved” in 2011, Fitch senior director Adam Fox told this publication.
“More than half these resolved loans were modified and with maturity extensions, interest rate reductions, or any combination of changes to their loan structure,” he said. “We won’t know if these modifications are successful in preventing a loss until the loans pay off at maturity.
“We do know commercial real estate values remain below 2007 peak levels and if these loans had not been modified but rather liquidated, most would take a loss,” Fox added.
The report indicates that severities declined for most major property types except hotels, which had the second highest percentage of loss severity behind retail.
Fitch said the only property type with a negative outlook is office and that this is the greatest concern.
