S&P Cites CMBS Strength

The credit performance of commercial mortgage-backed securities has been especially strong for nearly a decade, suggesting that pooled commercial mortgages have been "carefully underwritten with unique credit performance characteristics," according to Standard & Poor's Ratings Services.The report, "Credit Performance of U.S. Commercial Mortgage-Backed Securities," cites a study of cumulative principal losses -- and potential future losses -- of 237 pools of multiborrower CMBS rated by at least one U.S. rating agency from 1994 to mid-2002. So far, losses have been minimal, and they are positively associated with pool characteristics such as original loan-to-value ratio, the spread of mortgage note rate over the 10-year Treasury yield, age, and the maturity term of the underlying mortgages, the report says. Dr. Joseph Hu, managing director of research in structured finance at S&P, said the strong CMBS performance is attributable in part to "the economic prosperity of the past decade that greatly benefited the market value of commercial real estate properties."