Loss severities on U.S. commercial mortgage-backed securities (CMBS) that are liquidated at a loss decreased in the first quarter to 38%, down from 40% in the previous quarter, according to Moody's Investors Service.
Excluding loans with de minimis losses (that is, losses of less than 2%), the historical weighted average loss severity decreased to 52%, down from 53% last quarter. The declines were the first reduction in the severity of losses since the fourth quarter of 2008.
From April 2010 through March 2011, a total of $11.4 billion of CMBS debt was in liquidation – a $7.8 billion increase over the same period a year earlier, says Moody's. During the first quarter, an additional 391 loans liquidated for a loss at a weighted average loss severity of 30.4%, compared to 425 loans at a weighted average loss severity of 45.9% a quarter earlier, according to the ratings agency.
‘As commercial real estate markets begin to bottom out and valuations firm up, loan defaults should taper off, and smaller severities of loss can be anticipated,’ says Keith Banhazl, vice president and senior analyst.
