April 30 (The following statement was released by the rating agency)
U.S. CMBS loan loss severities rose slightly year-over-year, though other favorable trends surfaced that confirm the continued stabilization of the market, according to the latest annual CMBS loss study by Fitch Ratings.
Average loss severities rose slightly to 50.5% last year from 49.3% in 2011. Most loan workouts, not surprisingly, were from the problematic 2007 vintage (the peak origination year) with 239 of the 742 loans disposed of with losses coming from the 2007 vintage.
CMBS special servicers resolved 1,219 loans totaling $16.6 billion in 2012, a nearly 25% decline from 2011 (1,620 loans totaling $19.6 billion). Fewer loans were modified as well. Special servicers reported modifying 153 loans ($5.4 billion) in 2012 compared to 244 loans ($6.1 billion) in 2011. Nevertheless, many modifications may only be serving to delay losses given that total leverage on the underlying collateral remains high.
Fitch has also observed a rise in REO liquidations year-over-year. Fitch notes that REO liquidations rose to 53% of all disposed loans in 2012 compared to 40% in 2011. 'The rise in REO liquidations is a good sign that servicers are taking advantage of stabilizing market conditions to dispose of assets that have been languishing in special servicing for a number of years,' said Senior Director Karen Trebach.
Average loss severities were up slightly for all major property types year-over-year except for retail (down slightly). Despite the decrease, retail still has the highest cumulative loss severity at 51.1%, compared to the overall cumulative loss severity of 46.4%.
Fitch's latest 'U.S. CMBS Loss Study: 2012' is available at 'www.fitchratings.com' or by clicking on the above link.
Link to Fitch Ratings' Report: U.S. CMBS Loss Study: 2012