Fitch Ratings issued an industrywide report Tuesday on U.S.-based commercial mortgage-backed securities. The report highlights positive signs of progress but also says the sector has, "room for improvement."
The report cites underwriting standards being driven lower by lender competition, persistent conflicts of interest amongst mortgage providers, and excessively leveraged major loans granted after the 2008 financial crisis as areas of concern.
Fitch believes that the decision-making going into underwriting has improved, and credit ratings amongst U.S. CMBS "are close to double" pre-recession levels. There have been no downgrades of CMBS since the 2008 crisis. The overall improved health of commercial real estate and the U.S. economy as a whole also factor into Fitch's optimism.
Fitch even went so far as to highlight its own increased scrutiny of the industry, including unsolicited reports in situations where the service has not been contracted to provide a rating. That change is a result of criticism leveled against credit agencies post-financial crisis, for failing to raise red flags over solvency issues amongst businesses, like Lehman Brothers, that were overleveraged prior to that year's real estate bubble burst.
This is the first such report that Fitch has issued for the U.S. CMBS sector, though the service plans to issue more, starting with a follow-up in the fourth quarter of this year.
Overall optimism beat out criticism in Fitch's report, but the service clearly highlights that the industry still has areas where it can improve.
