The CMBS conduit originators Fitch Ratings surveyed have increased the amount of partial interest-only (IO) loans in their 2014 securitizations by 42%. The survey compared loans originated for 2013 through first-quarter 2014 securitizations to loans originated for second-quarter and third-quarter 2014 securitizations. Additionally, the leverage metrics, including loan-to-value ratio (LTV), also rose. While these metrics remain more prudent than before the crisis, these changes contribute to refinancing risk going forward.
All of the leverage metrics we track deteriorated. Fitch stressed LTV rose significantly to 106.7% in third-quarter 2014 from 100.7% in fiscal 2013. However, there was also a significant range among the originators. The lowest reported LTV was almost 5% below the average while the highest was close to 4% above it.
Fitch stressed DSCR declined over the same term to 1.17x from 1.24x. The range of DSCRs reported by the originators was also in a wide band. The highest was 0.18 above the average while the lowest was 0.18 below it.
The fastest growing sector in the study was multifamily properties. The number of loans on those properties grew by 40%. We believe some local overbuilding may be occurring in that sector in cities like Austin, TX and Charlotte, NC.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
Applicable Criteria and Related Research:
CMBS Originators Matter II - The Envelope Stretches (Trends,
Observations and Comparisons of Conduit Originations)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=834528
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