Mortgage-Backed Commercial Securities
National University of Singapore July 27, 2001
Notes from lecture given by Brent Ambrose at National University of Singapore July 2001
July 2001 Brent W. Ambrose, University of Kentucky 1
COMMERICAL MORTGAGEBACKED SECURITIES
What is a CMBS? A commercial mortgage-backed security (CMBS) is a financial asset.
created when an issuer places a commercial mortgage (or collection of mortgages) into a trust the trust issues classes of bonds backed by the underlying principal and interest payments.
July 2001 Brent W. Ambrose, University of Kentucky 2
Objectives for this Session
This session will cover the following topics:
July 2001
Differences between CMBS and MBS. The anatomy of a CMBS deal. Prepayment penalties on commercial mortgages. CMBS risks (prepayment & default) CMBS underwriting and the role of rating agencies. The role of CMBS servicers. Empirical studies of CMBS default and loss severity. How CMBS deals are rated.
Brent W. Ambrose, University of Kentucky 3
CMBS vs. MBS
Basic difference between residential MBS and commercial MBS:
PREPAYMENT
Commercial mortgages have prepayment lockouts and penalties. This changes the termination options. Default is now paramount.
July 2001
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U.S. CMBS Legalities
Real Estate Mortgage Investment Conduits (REMIC)
U.S. tax code provision that allows the pooling and securitization of mortgages. Once pool is formed, not allowed to substitute mortgages.
July 2001
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U.S. CMBS Legalities
Financial Asset Securitization Investment Trust (FASIT)
created in 1997 allows issuers to substitute and add collateral after securitization
now issuer can add mortgages to pool as they are originated
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U.S. CMBS Legalities
FASIT Allow securitization of a broader class of assets including:
1. 2. 3. 4. 5.
July 2001
construction loans commercial property bridge loans automobile loans credit card receivables home equity loans
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CMBS Anatomy
Cash Flows Subordination Prepayment Penalties CMBS Risks Call Protection Property Diversification Credit Enhancements Underwriting Role of Servicers
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July 2001
Typical CMBS Structure
Whole Loan Pool
Rating Sub DSCR LTV Spread Rating Sub
CMBS
DSCR LTV Spread Interest Principal
BBB
0%
1.40
75%
250 BP
AAA
30%
2.00
52.50%
136 BP
AA A BBB BB B NR
24% 18% 11% 6% 3% 0%
1.84 1.71 1.57 1.49 1.44 1.40
57.00% 61.50% 66.75% 70.50% 72.75% 75.00%
156 BP 176 BP 240 BP 535 BP 825 BP 2200 BP
Borrower Equity
Borrower Equity Losses
Source: Anthony Sanders
July 2001
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Actual CMBS Examples
GMAC Mortgage Pass-through Certificates NationsLink Commercial Mortgage Passthrough Certificates Series 1998-1
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GMACMortgagePassthroughCertificates,Series1997C1
DMGwastheLeadManagerofa$1.7Billionconduitsecuritizationthelargestofitskindatthe timeofissuance
CoLeadManagers: Servicer: Sellers: DeutscheMorganGrenfellInc. LehmanBrothersInc. GMACCommercialMortgageCorporation ContiTradeL.L.C. GermanAmericanMortgageCorporation GMACCommercialMortgageCorporation September25,1997
Go ra h d trib tio e g p ic is u n
$ ,6 6 8 ,2 8 1 9 ,9 4 7 35 5 30 8 $ ,7 0 3 4 8 ,2 7 8 2 .6 % 7 .0 % 1 4 1 3 .3 x
Clifo ia a rn N wY rk e o P n s lv n e n y a ia Cn e tic t onc u N wJ rs y e e e Tx s ea 1 .2 % 7 9 1 .2 % 2 5 7 4 .5 % 6 7 .0 % 6 1 .0 % 5 1 .4 %
IssuanceDate:
Collateral:
M rtg g p o c a c ris s o a e o l h ra te tic
In l p o b la c itia o l a n e N . o mrtg g lo n o f o ae as N . o mrtg g dp p rtie o f o a e ro e s A g Ct- ff d teb la c v . u o a a ne W . A g M rtg g ra td v . o a e te W . A g Ct- ff d teL V td v . u o a T W .A g D C td v . S R
M r rpt t p a p eyy s j o or e
Ri el t a Mi aiy uf m l t l Oe fi fc I d ti l ns a ur H i ay o t lt s i p Sl dui g kens i l rn Mds i eu x e S-t rg es a l o e f Ml h ea o eo pk b m r i C rgea/ ss dvg o e t c e st l i n a r ai e i n g Or te h 25 51 . % 17 89 . % 10 86 . % 12 01 . % 92 . % 4 73 . % 1 49 . % 2 26 . % 8 25 . % 6 08 . % 9 00 . % 1
The other remaining mortgaged properties are located throughout 37 other states, Puerto Rico and the District of Columbia Source: Anthony Sanders
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GMACMortgagePassThroughCertificates,Series1997 C1
Bonds:
Class
A-1 A-2 A-3 B C D E F G H J K X Total S ecurities
Initial Cert. Balance or Notional Am t.
$261, 582,000 $227, 661,000 $724,100,000 $67,879,000 $50,909,000 $50,909,000 $93,334,000 $25,454,000 $84,849,000 $59,394,000 $16,969,000 $33,944,278 $1,696,984,278 $1,696,984,278
Spread
48 62 65 70 75 85 100 118
Rating (Moody's/ Fitch)
Ass/AAA Aaa/AAA Aaa/AAA Aa2/AA+ A1/AA A2/A+ Baa2/BBB Baa3/BBBBB/BB B BUnrated Aaa/AAA
Percent of Initial Pool B alance
15.4% 13.4% 42.7% 4.0% 3.0% 3.0% 5.5% 1.5% 5.0% 3.5% 1.0% 2.0% N/A
Initial Pass- Weighted Through Rate Average L ife Sub-ordination (approx.) (yrs)
28.5% 28.5% 28.5% 24.5% 21.5% 18.5% 13.0% 11.5% 6.5% 3.0% 2.0% 0.0% N/A 6.830% 6.853% 6.869% 6.918% 6.898% 6.997% 7.085% 7.222% 7.414% 6.600% 6.600% 6.600% 1.629% 4.00 7.50 9.71 9.94 9.96 10.01 11.45 13.53 14.93 17.99 19.78 22.0 N/A
Paym ent Window
1 - 75 75-108 108-119 119-120 120-120 120-125 125-158 158-170 170-195 195-235 235-242 242-358 1-358
Notional Amt
Source: Anthony Sanders
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NationsLink Pass-through Certificates Series 1998-1
$ 1 Billion (approximately) of CMBS Class A-1 A-2 A-3 A B C D E F G IO
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Rating AAA AAA AAA AAA AA A BBB BB B unrated AAA
Principal $ 200mm $ 82mm $ 434mm $ 716mm $ 54mm $ 56mm $ 80mm $ 60mm $ 20mm $ 40mm notional
Coupon Subordination 6.49% 6.43% 6.40% 6.44% 6.60% 6.90% 7.00% 7.00% 7.00% 0.90% 30% 25% 20% 12% 6% 2% 0% na 101.00% 101.00% 101.00% 101.00% 100.75% 100.50% 85.00% 75.00% 45.00% 4.75%
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Brent W. Ambrose, University of Kentucky
CMBS Anatomy
Cash flow prioritization:
1) Principal repayments (both scheduled amortization and unscheduled prepayments) go to retire senior class debt first.
CF go to senior classes AAA through BBB Intermediate class Junior class Unrated Equity holder
2) Coupon interest paid to all classes
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CMBS Anatomy
Loss prioritization:
Principal and interest due the most junior class bondholder must be completely exhausted before any loss is assigned to the class above it.
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The Anatomy of a CMBS
Required Subordination The required level of subordination is computed as the expected loss in the event of a recession in the real property market. More specifically, required subordination = probability of loss (given a recession) x severity of loss (given a default) The probability of loss varies from small (say 10%) to large (say 50%), depending on the magnitude of the real property recession. The severity of loss is the amount of the loss conditional on a default. For example, a Class B real property recession will result in loan losses with a 10% probability. The severity of the loss is typically 20% of the loan balance. Therefore, the required subordination for a Class B real property recession is 10% x 20% = 2%.
July 2001 Brent W. Ambrose, University of Kentucky 16
The Anatomy of a CMBS
Example of Required Subordination Level Calculation (NationsLink Example) Type of Recession AAA AA A BBB BB B Probability of Loss 50% 45% 40% 30% 20% 10% x x x x x x x Severity of Loss 60% 55% 50% 40% 30% 20% = Required Subordination 30% 25% 20% 12% 6% 2%
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The Anatomy of a CMBS
The Unrated Piece The unrated piece is used to provide subordination for the lowest rated junior piece. The size of the unrated bond reflects rating agency requirements for loans that are not cross-collateralized and cross-defaulted. The unrated piece is sold privately and typically purchased by the special servicer.
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The Anatomy of a CMBS
The Interest Only (IO) Piece The notional balance of the IO piece is initially the aggregate issue amount ($ 1 billion in the example) The notional balance of the IO piece equals the sum of the certificate balances for the sequential pay certificates. The IO piece typically pays a small coupon (e.g. 90bp) and sells at a steep discount.
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CMBS Anatomy
Expected Cash Flows Review
Principal repayment
Scheduled amortization Unscheduled prepayment
Interest Penalties
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Hyperamortization Prepayment Penalty Balloon Default
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CMBS Anatomy (Penalties)
A. Hyperamortization (cash trap):
all cash flows in excess of operating expenses go to retire debt. Triggered by
i. ii. iii. iv. Delinquency failure to maintain required DSCR failure to maintain debt rating failure to maintain adequate reserves
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CMBS Anatomy (Penalties)
B. Prepayment penalty:
penalty assessed the borrower for early repayment of debt. Penalty may be computed in various ways.
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CMBS Anatomy (Penalties)
C. Balloon default:
penalty assessed the borrower for failing to refinance at the end of the loan term.
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CMBS Anatomy (Penalties)
Prepayment Penalties
1. A (declining) percent of the outstanding balance (e.g. 5-4-3-2-1) paid when the loan is prepaid 2. Yield maintenance: the prepayment penalty is computed as the difference between the book value of the loan and the PV of the remaining contractual payments discounted at some required interest rate. The required interest rate is expressed as some spread over the rate prevailing on comparable maturity Treasuries.
A. B.
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300bp over Treasuries zero spread: Treasuries flat
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CMBS Anatomy (Penalties)
Prepayment Penalties: 3. Lockout complete prohibition of prepayment of principal. Usually only in effect during the first few years of the mortgage.
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Simple Prepayment Example
Mortgage Assumptions:
Two year, $10 million interest only mortgage
10% interest rate on the loan at date of issuance Loan is repaid after 1 year when interest rates fall to 8%.
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Simple Prepayment Example
Prepayment Penalties
Yield Maintenance penalty provision
Penalty = ($1,000,000 - $800,000) / (1+0.08) = $185,185
Percent of Prepaid Amount penalty provision
Assume 1% penalty in this example Penalty = 1% * $10 million = $100,000
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Allocation of Prepayment Penalties
Allocation is based on the language in the CMBS prospectus
Ultimately determined by investment bankers and lawyers during the creation of CMBS Underwriters have a great deal of latitude No standard approach exists
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Yield Maintenance Calculations
One bullet loan tranched into two classes:
Assumptions:
1. Underlying loan is a ten year bullet loan priced at par and pays a 9% coupon 2. Multi-class structure:
Senior class is $90 million and pays an 8% coupon (priced at par). Subordinate class is a $10 million classs that pay an 18% coupon (priced at par).
3. Borrower prepays in full at at year 3. Current interest rates are 100bps lower than in year 0.
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CMBS Prepayment Example Whole Mortgage Prepayment Calculation -- Bullet Loan Principal Loan Type Term of Loan Discount Rate $ 100 Year Prepaid Non-amortizing Original Interest Rate 10 New Interest Rate 8% 3 9% 8%
Year
1 2 3 4 5 6 7 8 9 10
$ $ $ $ $ $ $ $ $ $
Original Coupon Payments 9.00 9.00 9.00 9.00 9.00 9.00 9.00
Discounted Cash Flows $ $ $ $ $ $ $ $ $ $ $ $ 8.33 7.72 7.14 6.62 6.13 5.67 5.25 46.86 5.21
Reinvested Interest Payments $ $ $ $ 8.00 $ 8.00 $ 8.00 $ 8.00 $ 8.00 $ 8.00 $ 8.00
Discounted Cash Flows $ $ $ $ 7.41 $ 6.86 $ 6.35 $ 5.88 $ 5.44 $ 5.04 $ 4.67 $ 41.65
Penalty (Difference in Cash Flows)
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Allocation of Penalty:
1. Percentage Prepayed Senior Class (90%) Junior Class (10%)
$ $ $
4.69 0.52 5.21
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Principal Loan Type Term of Loan Discount Rate
Using a Make-whole Calculation Senior Tranche $ 90 Year Prepaid Non-amortizing Original Interest Rate 10 New Interest Rate 7%
3 8% 7%
Year
1 2 3 4 5 6 7 8 9 10
$ $ $ $ $ $ $ $ $ $
Original Coupon Payments 7.20 7.20 7.20 7.20 7.20 7.20 7.20
Discounted Cash Flows $ $ $ $ $ $ $ $ $ $ $ $ 6.73 6.29 5.88 5.49 5.13 4.80 4.48 38.80 4.85
Reinvested Interest Payments $ $ $ $ 6.30 $ 6.30 $ 6.30 $ 6.30 $ 6.30 $ 6.30 $ 6.30
Discounted Cash Flows $ $ $ $ 5.89 $ 5.50 $ 5.14 $ 4.81 $ 4.49 $ 4.20 $ 3.92 $ 33.95
Penalty (Difference in Cash Flows)
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Principal Loan Type Term of Loan Discount Rate
Using a Make-whole Calculation Junior Tranche $ 10 Year Prepaid Non-amortizing Original Interest Rate 10 New Interest Rate 17%
3 18% 17%
Year
1 2 3 4 5 6 7 8 9 10
$ $ $ $ $ $ $ $ $ $
Original Coupon Payments 1.80 1.80 1.80 1.80 1.80 1.80 1.80
Discounted Cash Flows $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1.54 1.31 1.12 0.96 0.82 0.70 0.60 7.06 0.39 5.24 (0.04)
Reinvested Interest Payments $ $ $ $ 1.70 $ 1.70 $ 1.70 $ 1.70 $ 1.70 $ 1.70 $ 1.70
Discounted Cash Flows $ $ $ $ 1.45 $ 1.24 $ 1.06 $ 0.91 $ 0.78 $ 0.66 $ 0.57 $ 6.67
Penalty (Difference in Cash Flows) Total Penalty Payment (Junior + Senior) Difference in Penalty Payments
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CMBS Anatomy Risk
Rating Sub DSCR LTV Price Prepayment Risk Credit/De fault Risk
Premium
AAA
30%
2.00
52.50%
102
Discount
AA A BBB BB B NR
24% 18% 11% 6% 3% 0%
1.84 1.71 1.57 1.49 1.44 1.40
57.00% 61.50% 66.75% 70.50% 72.75% 75.00%
101 100 98 75 65 35
Extension Risk
Credit/De fault Risk
Source: Anthony Sanders
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CMBS Anatomy
CMBS Risk impacted by:
property quality geographic location tenant creditworthiness
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CMBS Risks
Default risk:
Income property loans are typically nonrecourse.
Borrower has the financial incentive to default when the market value of the property falls below the outstanding balance of the loan (negative equity). Also referred to as optimal, strategic, or financial default.
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CMBS Risks
Balloon risk:
income property mortgages typically have terms that are less than the loan amortization period, thus the borrower must refinance to continue making mortgage payments. Circumstances in the property and capital markets may have changed in ways that make refinancing difficult or even impossible.
Also referred to as refinancing risk
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CMBS Risks
Prepayment risk:
Many income property mortgages provide some call protection.
lock-out provisions prepayment penalties Treasury defeasance
Some income property mortgages do not have any of these features.
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CMBS Call Protection
Lock-out provisions:
prohibit loan prepayment over given period
Prepayment penalties:
paid in a lump sum at the time of prepayment; Cash flows are proportionally allocated to remaining certificate classes.
See previous examples of a (declining) percent of the outstanding loan balance or yield maintenance agreements
July 2001 Brent W. Ambrose, University of Kentucky 39
CMBS Call Protection
Treasury defeasance:
the borrower must purchase a series of Treasuries that provide the same future cash flows assuming the loan not prepaid.
Property release provision:
prohibits asset substitution; prevents the issuer/lender from removing the stronger properties from the pool.
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Property Diversification
Diversification across:
Loan size:
usually no single loan exceeds 5% of the aggregate issue amount. An exception to this is a fusion deal, where a single large loan is packaged with several smaller loans.
Property type Property location
State metropolitan area
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Loan Diversification
Table 2. The twenty largest loans underlying the GMAC 1999-C3 deal. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Name Biltmore Fashion Prime Outlets Equity Inns One Colorado Comerica Bank 120 Monument 125 Maiden Texas Development Sherman Plaza Alliance TP Bush Tower County Line Sherwood Lakes Laurel Portfolio Sweet Paper Sheraton Portsmouth Trinity C ommons Village Square Golden Books Air Touch Location, MSA Phoenix, Arizona Niagara Falls, New York Various Pasadena, San California Jose, California Indianapolis, Indiana New York, New York Houston, Texas Van Nuys, California Various New York, New York Jackson, Mississippi Schererville, Indiana Various Various Portsmouth, New Hampshire Fort Worth, Texas Indianapolis, Indiana Fayetteville, North Carolina Dublin, Ohio Category Retail Retail Hotel Retail Office Office Office Apartment Office Apartment Office Retail Apartment Apartment Warehouse Hotel Retail Apartment Warehouse Office Loan Amount $80,000,000 $62,835,426 $46,511,317 $42,628,093 $33,640,510 $28,955,362 $28,500,000 $26,926,701 $25,984,904 $24,888,157 $23,000,000 $20,990,264 $20,162,442 $17,950,331 $17,420,000 $15,949,087 $15,242,981 $14,993,950 $14,493,350 $13,992,523
Source: Charter Research.
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Geographic Diversification
Table 4. Aggregate loan amounts by state for GMAC 1999-C3 deal. State California Texas New York Arizona Indiana Ohio Mississippi New Jersey Other Loan Amount $257,522,410 $162,355,125 $130,070,471 $99,942,794 $68,623,516 $44,982,528 $23,067,864 $22,983,973 $342,473,371 No. of Loans 33 26 7 5 5 5 2 5 50 % of Pool 22.35% 14.09% 11.29% 8.68% 5.96% 3.90% 2.00% 2.00% 29.73%
Total
$1,152,022,052
138
100.00%
Source: Charter Research.
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Property Type Diversification
Table 5. Aggregate loan amounts by property type for GMAC 1999-C3 deal. Property Type Apartment Office Retail Warehouse Hotel Other Loan Amount $259,779,802 $322,053,844 $350,683,062 $99,126,075 $105,832,139 $14,547,130 No. of Loans 39 36 34 15 8 6 % of Pool 22.55% 27.96% 30.44% 8.60% 9.19% 1.26%
Total
$1,152,022,052
138
100.00%
Source: Charter Research.
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Credit Enhancements
Subordination Cross collateralization:
properties that collateralize individual loans are pledged against all loans in the pool
Cross default:
allows the lender to call ALL LOANS in the event a single loan is in default.
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Credit Enhancements
Lock box:
Gives the trustee control of the property gross revenues. The trustee assigns priority in the following order:
(1) taxes and insurance; (2) operating expenses; (3) debt service; (4) management fees; (5) reserves for replacements; (6) equity investor
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Credit Enhancements
Overcollateralization:
When the book value of the loans exceed the par value of the bonds issued. Most common in residential MBS
Especially common in CMO structure
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Reserve Funds
Established at loan closing to:
Provide liquidity:
to pay interest for investment grade bonds
Service the asset:
to pay
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property taxes property insurance legal fees Maintenance
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Standardized CMBS Underwriting
Key Underwriting Characteristics
Debt Service Coverage Ratio (DSCR) Loan to Value Ratio (LTV) Average loan size Max loan not to exceed certain percentage (e.g. 5%) Diversification across
Property types Geographic locations
Prepayment terms Loan maturities
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Role of rating agencies
Establish different rating criteria for various property types. Negotiate subordination levels with issuers. Track property performance/delinquencies Servicer and trustee report ongoing loan level performance
Monthly/quarterly DSCRs occupancy levels updated bond information
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Role of Servicers
Master Servicer:
Oversees the deal and servicing agreements Facilitates timely payment of principal and interest May provide (servicer) advances for delinquent/defaulted loans
Sub-Servicer:
loan originator in a conduit deal who retains servicing
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Role of Servicers
Special Servicer:
Becomes engaged when loan more than 60 days delinquent. Has the authority to
Extend the loan Modify/restructure the loan (based on an appraisal) Foreclose
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Pricing CMBS
Unlike residential MBS, the underlying mortgages have little prepayment risk. However, default risk is now relevant due to these risks: Lease termination risk Lease rollover risk Imperative to monitor developments in the overall real estate market.
For example, low vacancy rates may lead to additional construction.
This additional supply can result in reduced real lease rates in future years. Has implications on the ability of the property to service the debt in future years.
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Pricing CMBS
Rating agencies play a critical role in the CMBS pricing process.
S&P, Moodys, and Duff & Phelps maintain internal models of collateral risk in order to rate default risk associated with CMBS deals.
In addition to having to price deals in accordance with rating agency opinions, it is wise to understand the underlying real estate markets in order to anticipate payments delays or defaults.
Example. Lease rates and vacancy rates may look great at the moment, but will these indicators prompt developers/banks into another frenzy of construction?
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Pricing CMBS
Remember CMBS product is part of the fixed-income universe.
Capital markets are linked such that shocks in one market impact others.
For example Russian debt crises in 1998
See following charts.
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NCREIF Total Returns
0.04 0.03 0.02 0.01 0 1990 -0.01 -0.02 -0.03 -0.04 -0.05 Date 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
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Return
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Bond Market Yields 12
10
8 AAA 6 BBB Treas 4 %
2
0 Jan-90
Jan-91
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96 Date
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
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Bond Spreads
Bond Credit Spreads 3
2.5
2 Spread
1.5
AAA BBB
1
0.5
0 Jan-90
Jan-91
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96 Date
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
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Income Property Debt: Default and Loss Severity
*
What do we know about income property default and loss severity?
1. 2. 3. 4. Fitch ICBA, Inc. (1998) Corcoran and Kao (1998) Vandell, Barnes, Hartzell, Kraft, and Wendt (1993) Snyderman (1994)
*-these notes are based on lecture material provided by Thomas Thibodeau at Southern Methodist University.
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Income Property Debt: Default and Loss Severity
Fitch IBCA, Inc. (1998)
Study examines Fitch rated transactions between 1991 and 1996 18,839 loans (in 33 CMBS transactions) total principal $16.1 billion 84% thrift loans (mostly RTC) 16% conduit loans
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Income Property Debt: Default and Loss Severity
Fitch IBCA, Inc. (1998)
Examines relationship between default/loss severity and: Debt service coverage ratio (DSCR) Property type State Loan Size Fixed/floating rate loan Loan type (e.g. amortizing, balloon) Servicer flexibility Foreclosure type
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Income Property Debt: Default and Loss Severity
Fitch IBCA, Inc. (1998)
Default: > 60 days past due on debt service or > 90 days past due on balloon payment
3,134 lifetime defaulted loans (16.64%) 3,002 RTC loans (96% of defaults) annual default rate 4.3%
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Income Property Debt: Default and Loss Severity
Fitch IBCA, Inc. (1998)
Loss = loan balance at securitization + interest advanced + property protection expenses - loan amortization - property income - net sales proceeds
Losses reported as a percent of loan balance at securitization for loans COMPLETELY resolved (e.g. properties sold).
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Income Property Debt: Default and Loss Severity
Fitch IBCA, Inc. (1998)
Source of losses: Decrease in property value + advanced interest + advanced property protection expenses - amortization - property income (combined) Average Loss Rate: 35.8% 10.5% 7.7% 14.9% 39.1%
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Income Property Debt: Default and Loss Severity
Fitch IBCA, Inc. (1998)
DSCR 0.01-0.49 0.50-0.79 0.80-0.89 0.90-0.99 1.00-1.14 1.15-1.24 1.25-1.34 1.35-1.49 1.50-1.74 1.75+
July 2001
Default Rate 8.0% 7.0% 6.6% 6.5% 4.4% 2.6% 2.4% 2.8% 3.1% 2.9%
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Loss 47% 52% 42% 41% 29% 48% 27% 36% 41% 22%
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Income Property Debt: Default and Loss Severity
Fitch IBCA, Inc. (1998)
Property Type Lodging Multifamily Nursing Office Industrial Other Retirement Warehouse Default Rate 4.2% 3.9% 4.0% 4.8% 4.7% 4.2% 4.7% 2.5% Loss 27% 46% 11% 38% 27% 46% 34% 29%
July 2001
Brent W. Ambrose, University of Kentucky
70
Income Property Debt: Default and Loss Severity
Fitch IBCA, Inc. (1998)
State Highest 5: New York Louisianna New Mexico Arizona Massachusetts Iowa Florida Texas Washington Oregon Default Rate 6.8% 5.8% 5.5% 5.2% 5.2% 3.5% 3.1% 3.1% 2.4% 1.9% Loss 32% 69% 25% 22% 40% 65% 44% 45% 25% 34%
71
Lowest 5:
July 2001
Brent W. Ambrose, University of Kentucky
Income Property Debt: Default and Loss Severity
Fitch IBCA, Inc. (1998)
Loan Size $0.0M - $0.5M $0.5M - $1.0M $1.0M - $5.0M $5.0M - $10M > $10M
July 2001
Default Rate 4.0% 5.5% 4.9% 3.9% 2.0%
Brent W. Ambrose, University of Kentucky
Loss 38% 42% 39% 37% 34%
72
Income Property Debt: Default and Loss Severity
Fitch IBCA, Inc. (1998)
Other Results Interest Rate: Floating rate Fixed rate Loan Type: Amortizing Balloon 2.6% 6.0% 5.4% 3.5% 42% 35% Default Rate Loss
Judicial foreclosures take longer and cost (between 8% and 26%) more than nonjudicial (e.g. power of sale states) foreclosures.
July 2001 Brent W. Ambrose, University of Kentucky 73
Income Prop...