U.S. special servicers are working out underperforming commercial mortgage loans at an increasingly faster rate, though they remain mired in an uphill battle heading into 2011, according to a new report from Fitch Ratings.
Loans transferring out of special servicing reached a record $27.9 billion during the third quarter of 2010 – more than in the last four years combined. Additionally, the rate of loans entering special servicing fell for the first time in over two years, dropping nearly $2 billion from the second quarter to $90.1 billion.
‘Loan modifications continue to dominate as a resolution method,’ says Managing Director Stephanie Petosa. ‘Servicers will resolve loans with increased velocity as liquidity returns to the CMBS market.’
In the fourth quarter, however, the rate of new loans transferring into special servicing spiked, Fitch adds. Recent vintages are still accounting for the largest volume of transfers, with 2005-2007 vintages representing over 85% of all specially serviced loans by balance.
Also impacting overall loan recovery rates is the extraordinary volume of modified loans returning to master servicing.
‘There is no guarantee that modifications will result in a full payoff at maturity or the end of term,’ Petosa explains. ‘Recovery rates for loans with losses will also continue to see more instability.’
SOURCE: Fitch Ratings
