Delinquency rates
The Mortgage Bankers Association released its 3rd quarter analysis of U.S. delinquency rates:
Life company portfolios: 0.06 percent (60 or more days delinquent);
Freddie Mac: 0.05 percent (60 or more days delinquent);
Fannie Mae: 0.18 percent (60 or more days delinquent);
Banks and thrifts (FDIC insured): 1.95 percent (90 or more days delinquent or in non-accrual);
CMBS: 7.51 percent (30 or more days delinquent or in REO)
No real point to this post other than to point out the massive difference in delinquency between CMBS and every other loan vehicle. What's a little frightening is how CMBS originations are accelerating rapidly. It really feels like 2002 right now in real estate--houses on the market for a week, low interest rates, healthy stock market, low inflation, poor real job growth and wage growth for the typical person. It almost feels like we haven't learned much from history.
I talked to a guy who worked for a CMBS structuring group at a major real estate company. He said the single most noteworthy thing about the CMBS market today is how much the average creditworthiness of borrowers has declined in CMBS portfolios. Easy money and an arguably artificial recovery is pushing commercial property into the hands of people who have no real ability to pay for it as their isn't any real rental market out there.
Thats because the life companies are more competitive with quality sponsors than the conduits now.
Are life companies offering 80%? Haven't seen that
Back in the boom there were literally 90% LTV cmbs deals going on.
Cmbs market is getting kinda crazy
Ive had shops bidding against each other to get some seriously mediocre deals in the last few months
Atleast for us at equal LTV we are seeing conduits on average 50-150 bps wide of the life companies (that is if the asset is something the lifeco's like). And especially important in this market is that you cant lock rate until you close with the conduits.
Banks are also suprisingly hungry right now.
We'll go up to 85% with mezz. for the right deal. Though the right deal is very, very rare, as most deals today become debt service coverage constrained at that leverage.
BTW, to my point about how this feels like a new real estate bubble, I just read a headline from realclearmarkets.com: 2013 Best Year for Jobs Since 2005.
Zerohedge is probably loving all these comparisons and similarities. It's crazy though, I feel like I am watching a car sitting on the train tracks and the train is coming down the tracks. Just like it did in 08
So which firms and players are going to clean up given this impending tidal wave of doom 2.0?
Or who's going to get absolutely destroyed? One of the directors at one of the big bank CMBS groups came into our office a few weeks back and he had mentioned how there are a bunch of B-piece buyers popping up (shops mostly ran by former Lehman guys I believe) that are competing heavily against one another.
NPL portfolio purchasers
To the OPs original point, an acceleration of issuances is not necessarily a problem; part of the value of CMBS is the liquidity they provides to the market. The problems begin to arise when underwriting standards are relaxed, which is what seems to be happening again.
Oh it's definitely happening, and it's a vicious circle.
We have certain underwriting criteria. Then we lose deals to more aggressive shops. Then the heads of our business start relaxing their own standards. Then the really aggressive guys lower theirs again to make sure they win the next deal.
Rinse and repeat until the next downturn.
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