REO dispositions drive CMBS delinquencies lower.

Author:Tucker, Michael

* Commercial mortgage-backed securities (CMBS) delinquencies continued their steady improvement in September, driven by large real estate--owned (REO) dispositions, reported Fitch Ratings, New York.

CMBS late-pays fell to 6.57 percent in September from 6.68 percent a month earlier.

"CMBS delinquencies will continue to move lower as assets become REO and are disposed of," said Mary MacNeill, managing director with Fitch, adding that the percentage of REO assets in Fitch Ratings' delinquency index exceeded 50 percent for the first time in the index's history in September, up from 37 percent a year ago.

Brian Olasov, managing director with McKenna Long & Aldridge LLP, Atlanta, said recent delinquency drops differ from prior declines. "When CMBS outstandings declined over the past five years, since the denominator shrank, percentages of delinquencies and loans in special servicing increased even if absolute volumes didn't," he said. "CMBS has stopped shrinking due to new issue successes."

He added, "[Also], special servicers have gotten better at resolving assets. Certainly, servicers have gotten better as we better understand what works and doesn't work in successful resolutions, when it's best to foreclose and when it's best for the trust to sell the loan asset."

Olasov said special servicers find it easier to resolve a problem asset when property values inflate. "Borrowers care more about holding on to their project, financing--including rescue capital--is easier to come by and pools of non-performing loan investors bid up the prices of note...

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