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Weekly Wrap: CMBS delinquencies ticked up in October

Fitch Ratings on Friday reported the U.S. CMBS delinquency rate reversed course in October, rising 21 to basis points to 4.85% after two consecutive months of declines.

New delinquencies for outstanding commercial mortgage-backed securities deals tracked by Fitch totaled $3.2 billion, up from $2 billiion in September, according to the report.

"Of the new delinquencies, nearly 70% ($2.2 billion) were first time additions to Fitch's delinquency index since the start of the pandemic with 13% ($403 million) previously been granted debt relief," Fitch's report stated.

About $1.5 billion of the newly delinquent loans were in the retail space, including $1 billion for 12 loans secured by regional malls that were already suffering from falling sales and traffic before the COVID-19 pandemic.

$1 billion in regional shoppinig mall loans went into delinquency in October

About 44% of the 30-day delinquencies in September rolled into 60-day late obligations in October, as the roll rate increased from the prior two months (30% from August to September, 32% from July to August).

Despite the rising rate, the delinquency rate remains "well below" Fitch's projection of between 8.25% and 8.75% by year's end, the report stated. "This is due to both the continued issuance volume during the pandemic and fewer actual defaults than anticipated, aided by government stimulus and debt relief granted by servicers and Freddie Mac."

Vehicle return signage is displayed at an Avis Budget Group Inc. location at Los Angeles International Airport (LAX) in Los Angeles, California, U.S., on Sunday, Nov. 5, 2017. Avis is scheduled to release earnings figures on Nov. 6. Photographer: Patrick T. Fallon/Bloomberg

Avis taken off downgrade watch

Avis Budget Rental Car Funding (AESOP) had its outstanding ratings on $4.65 billion in asset-backed securities affirmed by Fitch Ratings this week, which also took the rental car firm off downgrade watch.

But the company is not out of the woods, based on the continuing potential impact of the COVID-19 outbreak.

In a release Friday, Fitch Ratings affirmed the various ratings on the eight outstanding pari passu note series from the AESOP master trust issued between 2017 and 2020. The special purpose, bankruptcy remote raises cash through bond sales to purchase Avis' rental vehicle and truck fleets, which in turn are leased back to the sponsor, Avis Budget Car Rental. Investors are paid the proceeds from the leases as well as subsequent vehicle sales.

Avis has been "experiencing solid disposition vehicle proceeds in excess of the net book values (NBV) to date," allowing it to maintain a smaller fleet for the sharply falling demand for rental cars since the onset of the coronavirus pandemic.

While removing the negative credit watch, Fitch still assigned a negative outlook due to the ongoing challenges of the pandemic impact on the travel sector. "Fitch believes the company still faces execution risksdue to the challenging pandemic environment pandemic as the company continues to operate through. Further, volatilityin used vehicle values and ongoing functioning of wholesale vehicle markets have improved since the lows of March-June, but risks remain across these ABS."

Similar ABS notes issued by a special-purpose vehicle of Avis' rival, The Hertz Corp., are still on negative credit watch as Hertz winds its way through a Chapter 11 bankruptcy, which includes an interim settlement and agreement with investors and creditors on vehicle fleet management and sales.

CLO equity rebounds with strong October performance

The performance of U.S. CLO equity made a “stunning rebuke” of doubters with a strong October that carried annualized returns into double digits for a 10thconsecutive year.

According to a newly published securitized research report from JPMorgan, the ownership stakes of collateralized loan obligations delivered an annualized cashflow return of 11.3% as of Oct. 28, and 95% of CLOs currently in a reinvestment period (in a JPMorgan sampling) made a payment to equity holders with no cashflow diversion to higher-priority debt securities in the capital stack.

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Annual mortgage origination volume to hit record-breaking $4 trillion

In this precedent-busting year, mortgage volumes are predicted to hit new quarterly and annual highs, according to Black Knight.

The latest 45-day rate lock data from the Mortgage Monitor Report put third-quarter originations — both purchase and refinance — on track to break the previous record and stay high through the end of the year and possibly longer. The low interest rate environment is expected to keep consumer demand charged.

"Estimated origination volumes based on underlying locks suggest both Q3 refinance and total originations could be up 25% or more from Q2 while purchase lending could be up by 35% or more," Ben Graboske, president of data and analytics for Black Knight, said in a press release. "This would push 2020 purchase lending to the highest level since 2005 and both refinance lending and total origination volumes to their highest levels ever. Indeed, total lending in 2020 is well on its way to easily eclipse the $4 trillion mark for the first time in history."

The delinquency rate went to about 6.7% in September, falling 3.1% from August and shooting up 89% year-over-year. Meanwhile, foreclosures made up 0.34% of mortgages, down 2.86% monthly and 29.14% annually. As of the end of September, 23% of mortgages in active forbearance are current on their payments. About 8% are either 30, 60 or 90 days late, and a 52% share is 120 days past due.

Among borrowers who exited forbearance, approximately 8% paid off their loans and 36% are reperforming. Government-sponsored enterprise loans — which boast lower rates of forborne loans — posted a 10% paid-off share and 42% reperforming. Mortgages insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs haven’t met those levels yet. Pay offs account for 6% and reperforming account for 27% of FHA exits from coronavirus-related forbearance. VA loans posted 11% and 21% shares.
Fed Gov. Jay Powell
Jerome Powell, governor of the U.S. Federal Reserve, listens during a Senate Banking Committee hearing in Washington, D.C., U.S., on Thursday, June 22, 2017. Top U.S. banking regulators are sprinting to ease the Volcker Rule, stress tests and other constraints on Wall Street after the Trump administration issued a long list of proposals last week for rolling back post-crisis financial rules. Photographer: Andrew Harrer/Bloomberg

'We will continue to do our jobs,' Fed's Powell vows as election drags on

WASHINGTON — Federal Reserve Chairman Jerome Powell explained the central bank's thinking behind changes to its middle-market relief loan program, while attempting to assure the markets that the Fed's mission is undeterred during a time of political uncertainty.

Powell's press conference Thursday, corresponding with a meeting of the Federal Open Market Committee, came days after the Fed announced it was cutting the minimum loan size to $100,000 for businesses in the Main Street Lending Program. The change, intended to boost participation in the coronavirus relief program, came despite Powell's earlier resistance to the reduction.

"We try to be responsive — we want qualifying businesses to be able to borrow, and we'll see how much demand will come,” he said.

Powell was also asked about any potential concerns about market turmoil or economic instability resulting from uncertainty about the presidential election. The election, held Tuesday, still has no winner, and potential legal challenges by the Trump administration to vote-counting efforts in key states have been accompanied by protests from supporters of both President Trump and Joe Biden.

While declining to weigh in on the election, Powell said agencies like the Fed should remain focused on efforts to support the economy, which is still grappling with the coronavirus pandemic.
Domino pieces standing in a row. 3D illustration
Domino pieces standing in a row. 3D illustration.

New issue pipeline

Issuers filing ABS-15G registrations for new-issue U.S. ABS for the week of Oct. 30-Nov. 5 (per Finsight.com)
Deal Name Issuer Asset Type
ECMC 2020-3 Education Credit Management Corp (ECMC) Student loan ABS
Legacy Mortgage Asset Trust 2018-RPL5 Esoteric
BX Commercial Mortgage Trust 2020-VIV4 CMBS
CARS MTI-2 L.L.C. Auto
CARS MTI-7 L.L.C. Auto
CARS MTI-3 L.L.C. Auto
CARS MTI-5 L.P. Auto
CARS MTI-1 L.P. Auto
CARS MTI-4 L.P. Auto
FREMF 2020-K740 Mortgage Trust Freddie Mac CMBS
Angel Oak Mortgage Trust I, LLC Angel Oak RMBS
Gage Park LLC Esoteric
Citigroup Commercial Mortgage Trust 2020-420K Citigroup CMBS
Ally Wholesale Enterprises LLC Ally AUTO
GMF Canada Leasing Trust GM Financial AUTO