CMBS Loans Have Highest Monthly Average Loss Severity Since December 2010

---

US fixed-rate conduit loan liquidations in August had the highest monthly average loss severity since December 2010, according to a Trepp, LLC report issued on Wednesday.  While loan liquidations rose by 4%, loss severity jumped to 53.29% from 37.96% in July. This is because servicers picked up the pace of liquidations a little in August causing them to reach a total of $1.44 billion compared to the 12-month moving average of $1.34 billion.

There were 141 loan liquidations in August resulting in a total of $767 million in losses.  August's reading was up 1533 basis points from July and nearly 10 percentage points above the 12-month moving average of 43.3%. Since January 2010, servicers have been liquidating loans at an average of $1.13 billion per month.

The number of CMBS conduit loans liquidated in August was 141, on par with the 12-month average of 143. Although the number of resolved loans fell from July's 163, the average size of liquidated loans in August spiked to $10.21 million from $8.48 million month-over-month. The 12-month average for liquidated loan size is $9.35 million.

Trepp chose different ways to analyze loan liquidations in August. For example, to get a different perspective, it took out the loans for which losses were less than 2%. The reason for that, the report explains, is that many of the small-loss loans are actually refinancings where losses reflect small, unpaid special servicer fees or other costs. That brings the total loan balance for liquidated loans in August to about $1.19 billion, less than $1.44 billion, the total if all loans are included. Still, $1.19 billion is higher than any month's total since May 2012 and the second highest for the year. The $1.19 billion figure compares to an average of $887 million over the last 32 months and $1.08 billion over the last 12 months.  

Not counting the loans with less than 2% losses changed, not just the loan count, that went from 141 to 118, but the loss severity, which jumped to 63.81% for August, up sharply from July's 52.70%. This was well above the average monthly loss severity of 54.37% over the last 32 months. The August loss severity, at its highest level since September 2010, compares to a 12-month average of 53.50%.