•
•
•
Commercial Mortgage-Backed Securities
(continued)
o
Stress Testing Strnctures
D All
analysis of the credit quality of the
tranches in a CMBS involves looking at the
commercial
loans
on
a loan-by-loan
basis.
o Rating agencies and analysts will then stress
test the structure with respect to a
combination
of default and prepayment
assumptions.
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11
Commercial
Mortgage-Backed
Securities
(continued)
o
Stress Testing Structures
o
In stress
testing
default
risk, the following
three
key assumptions
are made
The first is the annual
rate of defaults
as
measured
by the
conditional
default
rate (CDR).
Analysts
often assume
3
CDR of2%
to stress
lest
strong deals and
3% to test weaker
deals
.
II
A second
important
assumption
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
of the loan balance
that 'Will be lost when
a default
occurs
This
measure
is called the
Joss
se'·erity.
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- Fall '11
- Hood
- Debt, mortgage-backed securities, Mortgage-backed security, stress testing default, Commercial Mortgage-Backed Securities
-
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