KIC000030 - • Commercial Mortgage-Backed Securities...

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Unformatted text preview: • Commercial Mortgage-Backed Securities (continued) o Stress D Testing Strnctures analysis of the credit quality of the tranches in a CMBS involves looking at the commercial loans on a loan-by-loan basis. All o Rating agencies and analysts will then stress test the structure with respect to a combination of default and prepayment assumptions. U'fl)"''il"'{' :oW? "''',r",...'''''' ,,, ;;d",'~J", ~,,,,'''"''f',dl Commercial Mortgage-Backed Securities (continued) o Stress o Testing Structures In stress testing default are made The first is the annual • conditional default risk, the following rate of defaults A second important as measured by the rate (CDR). Analysts often assume 3 CDR of2% 3% to test weaker deals II three key assumptions assumption to stress . lest strong deals and is the timing of the defaults. A default can occur sometime early in the term of the loan or at the balloon dote (wllt'n refinancing is required). iii. A third important assumption is the per-centage that 'Will be lost when a default occurs This of the loan balance measure is called the Joss se'·erity. ~P'I'i¢,,.,;ro,~~,,,,,,,,,,.,,,...,,,,c . "",~I"''''~''''-~ Commercial Mortgage-Backed Securities (continued) o Stress Testing Structures a To illustrate the importance of the assumptions on stress testing, Corcoran and Phillips used three stress test scenarios deal 10 assess the impact on each bond class a Exhibit 14-9 for a conduit (see Overhead /4-36) shows the bond classes in the structure The loans are Iu-year- balloon loans with a 30-ycar amortization. For each scenario, the loss se~erity assumed was 33% along with a CPRofzero. o o • Exhibit 14-9 shows the results of the analysis The spread reponed is a "credit-adjusted spread," which is a spread measure based on cash flows adjusted for the assumed defaults for the scenario. OIl the spread. <;;Oi>"M;-'1\1"'G!OAt.,,_~ ...... "'.1'># .. "", '<01; "'f""""" 11 �------------------------------------- ~"I'1"l>'«"'2'''"_~_''''f<l'''.."", "oC,p,,,,,,,",,,,,,,,,P,,,,,",",,HtIII • 12 • ...
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This note was uploaded on 09/06/2011 for the course FIN 428 taught by Professor Hood during the Fall '11 term at Iowa State.

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KIC000030 - • Commercial Mortgage-Backed Securities...

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