The commercial mortgage-backed securities (CMBS) continued to post positive excess returns for the seventh consecutive month in September, according to Barclays Capital analysts. As the rally matures, investors continue to move out of the risk spectrum and toward investment-grade junior notes. But analysts continue to see better risk-adjusted returns in some senior triple-As and remain cautious across the CMBX [the CMBS pricing index]subordinate tranches, even though they outperformed their cash counterparts steeply in September. But some commercial real estate (CRE) losses on souring mortgages still pose a threat to financial institutions, and banking regulators are planning to issue guidelines helping lenders modify CRE loans – a potential blow to the CMBS market because investors are forced to absorb the hit on modifications. "The most prominent area of risk for rising credit losses at FDIC-insured institutions during the next several quarters is in [commercial real estate] lending," Sheila Bair, chairwoman of the Federal Deposit Insurance Corp. (FDIC). "Prudent loan workouts are often in the best interest of financial institutions and borrowers." Leaders of the FDIC, the Office of the Thrift Supervision (OTC) and the Office of the Comptroller of the Currency (OCC) will testify on the situation before the Senate banking committee today. The Internal Revenue Service has already released two pieces of guidance last week addressing the types of modifications for commercial mortgage loans held by real estate mortgage investment conduits (REMIC). Write to Jon Prior.