As a follow-up to its conduit loan default study that it released in May, Fitch would be coming out sometime this month with a report that would look at the reasons why CMBS loans defaulted and what happened next after these defaults occurred.

In the May report entitled "Perfect to a Default" the rating agency looked at 24,000 conduit loans in 167 Fitch-rated CMBS deals approximately worth $141 billion. Of these loans, 248 defaulted which resulted in a cumulative default rate of 1.02%.

According to Fitch's most recent real estate update, the follow-up study would focus on the 248 defaulted loans, finding out why these loans defaulted and what actually occurred in the default process.

The rating agency in its analysis defined a default as any loan "that is 60 days or more past due on its debt service payment and/or transferred to the special servicer."

Fitch was surprised at the number of loans that either became current or were returned to performing or that were paid in full.

The rating agency said that despite the fact that most of the loans continued from 60 to 90 days delinquent, 55 loans (22% of the defaulted population) were current on their debt service payment and returned to performing status.

Furthermore, many of the loans only became delinquent during the refinancing process and 26 loans or 11% of the pool were paid in full after defaulting.

According to an earlier ASR story, this Fitch report distinguishes between a monetary default and a non-monetary default. A non-monetary default involves the non-compliance with a requirement in the payment of a loan, usually a mere procedural matter. This type of non-compliance, however, does not allow a servicer to accelerate payment on a note or to foreclose on a borrower (ASR 5/14/2001, p.13).

In related news, the rating agency also launched a new Fitch Large Loan Index (FLLEX) that features a scoring system that would define more precisely the rating agency's view of the individual credit risk of CMBS loans found in Fitch-rated large-loan transactions.

"It is another way to give more information to investors and to give them a little bit more of an indication of how we view the credit quality of some of those underlying loans," said Diane Lans, a senior director at Fitch.

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