There continued to be some mixed signals in CMBS and RMBS markets last week but these still netted out to cautiously optimistic views of the sectors in some respects.
For example, the percentage of CMBS loans paying off at their balloon date retreated to 38.7% in January after spiking to 51.5% in December, according to Trepp. But Trepp managing director Manus Clancy said he would be cautious about reading too much into the decline. “One month doesn’t make a trend,” he said.
Over the long term, he said the trend in which payoff rates have gone from the 20s and low 30s in terms of percentages into the high 30s or 40s — as high as 50 in December — appears more definitive than the recent month-to-month lapse.
“I think that that is indicative of the fact that some of the congestion in the capital markets is starting to unclog at this point,” he said. “Financing is becoming easier, the CMBS markets are starting to fire up again.”
Payoff rates are improving but are nowhere where they once were pre-crisis, when Clancy said they were 70, 80 or 90%. “We’ll be happy when this gets back to a 70% number,” he said, noting that ever since late 2008 the percentage of loans that have failed to pay off at their balloon date has remained historically large.
Still, relative improvements in issuance and trading activity have continued and could continue to help improve payoff rates. As Braver Stern Securities head of investment strategy Scott Buchta noted in a Feb. 9 report, nontraditional CMBS players have continued to buy bonds and several deals more than $1 billion in size were in the market or in the works last week.
For example, Fitch Ratings at press time was expecting to rate a multiborrower CMBS backed by loans with an aggregate principal balance of about $1.3 billion. Wells Fargo Bank, The Royal Bank of Scotland, RBS Financial Products, Natixis Real Estate Capital and Basis Real Estate Capital II originated the loans in the CMBS, WF-RBS Commercial Mortgage Trust 2011-C2. Wells Fargo and Midland Loan Services were named the master servicer and special servicer, respectively. Another example of a deal, as previously noted on this publication’s website, was what appeared to be the first rated small-balance loan CMBS seen in some time.
In other news, Barclays Capital analysts noted in a Feb. 9 residential credit report from the American Securitization Forum’s meeting that issuance hurdles remain as rates rise and voluntary prepayments fall.
Specifically, the report said government-sponsored enterprise execution and portfolio funding are still more economical. Although a pullback in GSE guidelines could limit that activity. Also consider the uncertainty about the GSEs’ longevity in their current form, particularly given the Treasury’s report was emerging last week.
Barclays analysts see the nonagency market still selectively attractive but not as broadly as it was a few months before. It said it favors jumbos and fixed-rate Alt-A credit.
The report indicated the foreclosure-to-REO roll rate has slowed by about 50% over the past few months and that the slower pace could continue for another few months before improving.
