No subprime debacle seen in commercial MBS -Moody's

By Al Yoon

NEW YORK, Oct 31 (Reuters) - Credit erosion in commercial mortgage-backed securities will be less sudden and severe than bonds backed by residential loans since investors are privy to more information, according to Moody's Investors Service.

Rising delinquencies on CMBS are likely given a recent decline in underwriting standards and a reduction in liquidity to credit markets in recent months, Moody's analysts said in a report provided to Reuters on Wednesday. But transparency and a sophisticated investor base will prevent the debacle in bonds backed by subprime mortgages, it said.

CMBS delinquencies will probably represent a return to "normal levels" from exceptionally low levels today, instead of the soaring rates in subprime markets, the analysts said.

"Given that property fundamentals are presently strong, we don't expect the delinquency increase to amount to anywhere near that of the early 1990s for commercial real estate or current levels for subprime residential mortgages," they said.

Lending is based on cash flow, information that is typically accessible to commercial real estate investors, they said. In contrast, subprime investors can see loan terms but rarely into homeowners' finances.

"The main difference between commercial real estate and residential is that commercial is a business, and one of the more transparent ones at that," the analysts said.

The "generally strong" market today is a mitigating factor should the economy head into recession, they said.

Commercial borrowers are also more sophisticated than residential borrowers and therefore less likely to be surprised by rising loan terms and payments, they said.