Fitch points to 2001 vintage as model for CMBS 2.0
Commercial mortgage-backed securities issued in 2001 weathered two financial downturns, making them solid examples of what CMBS underwriting should look like in the future, a Fitch Ratings report said Tuesday. Fitch Managing Director Huxley Somerville says in a new report that the 2001 vintage fared well during the tech bust and the 2008 mortgage market meltdown. To date, 92.5% of CMBS from 2001 reviewed by Fitch has been either liquidated or repaid. The reason for this vintage's success is tied specifically to disciplined underwriting and the fact collateral for bonds sold in 2001 had moderate initial leverage, Somerville said. "Performance on 2001 CMBS has yielded a welcome lack of surprises for investors in a broader market full of them," he said. "Collateral from 2001 has proven easier to refinance thanks to its moderate leverage, which may be an important consideration in a current environment with rising leverage and declining underwriting on new deals." When shaping the model for CMBS 2.0 — the new market for securitized commercial loans — Fitch said the characteristics from the 2001 CMBS collateral should be used in structuring assets to ensure new originations possess the ability to weather steep market downturns. "The attribute that probably best typifies the 2001 vintage collateral is its moderate initial leverage, which has made loans easier to refinance," Huxley wrote. "The disciplined underwriting also provided 2001 deals with strong structural features while the credit enhancement levels helped mitigate the dual recessionary stresses." Fitch believes cumulative losses for 2001 vintage multi-borrower, large loan and single borrower CMBS deals will top out at about 3.2%. Write to Kerri Panchuk.