The annual default rate of conduit loans in CMBS transactions rated by Fitch Ratings was .72% in 2002, stated the latest conduit loan study published by the rating agency. Furthermore, the default rate is expected to rise to only .9% by end of this year.

Mary MacNeill, senior director at Fitch, said that despite expectations of rising defaults in 2003, CMBS investors should remember that in Fitch-rated transactions fewer than 3% of the almost 30,000 loans in the CMBS deals reviewed in this study have ever experienced a monetary default.

The study said a total of 311 new loans experienced defaults in 2002. This brings the total number of defaults since 1993 to 807.

The rating agency estimates that the cumulative default rate, which is currently at 2.66%, will rise to 3.75% in 2003.The total dollar balance of defaults has gone up to $7.6 billion from the current $4.7 billion.

McNeill added that Fitch does not anticipate that loan defaults will stabilize until economic recovery gains momentum, which is expected to be more than a year away.

The new study analyzed 200 Fitch-rated deals with an aggregate principal balance of roughly $177 billion. The report found that 74% of the 2002 default balance was due to hotel, retail and multifamily. The analysis used was by geography, by vintage and seasoning, by size of defaults and by property type. Statistics on annual and cumulative default rates were also part of the study.

Geographic analysis showed that Florida, though ranking fourth in contributions to CMBS collateral, leads all other states in defaulted loans. The state contributed 12.2% of the default balance.


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