With the February 2014 remittance, the delinquent unpaid balance for CMBS decreased to a trailing 12-month (TTM) low of $37.08 billion (5.32%), down from $39.39 billion (5.32%) a month prior. This marks the ninth straight month of decline and the third consecutive month that the overall delinquent unpaid balance has been reported below $40 billion, a low point not seen since November 2009 (at $37.93 billion). Correspondingly, the delinquency rate itself had not fallen below 5.0% since November 2009 (at 4.71%). Meanwhile, a monthly decline has now been reported in 21 of the past 26 remittance cycles since January 2012. While roughly $2.2 billion in newly delinquent loans were reported with the February 2014 remittance, a much higher $4.45 billion in loan resolutions (including loan payoffs, liquidations, and returns to performing status) were also reported, resulting in a net decrease to the delinquent unpaid balance. This includes a direct impact from high monthly liquidations by balance in February 2014, totaling $2.9 billion across 142 loans, at an average loss severity of 48.1% – the highest monthly liquidation amount tracked by Morningstar (driven by the CW Auction results), topping the previously recorded $2.29 billion in July 2013. Otherwise,the February 2014 delinquency figure remains down substantially year-over-year, from a high of $52.15billion (7.23%) as of February 2013, while a net decrease was noted in four of the five delinquency categories through February 2014 (as only the 60-day category reflected an increase). In aggregate, the distressed categories of 90+-day, Foreclosure and REO decreased for the seventh consecutive month, down by $2.27 billion in February 2014. Meanwhile, the two most distressed categories of Foreclosure and REO also decreased in aggregate by $1.57 billion in February 2014 (down to $25.64 billion), and have now decreased by $5.75 billion year-over-year (down by 18.3% from $31.39 billion in February 2013).
Forecast: The delinquent unpaid balance for CMBS and percentage continue to be impacted by the size and amount of loan liquidations, modifications, extensions and resolutions reported on a monthly basis, and are clearly on a road to recovery. These items, along with continued new issuance growth, should lead to a further decline in delinquency levels in 2014. Based upon an updated trailing 12-month analysis of the movement in delinquent unpaid balance from loan workouts and liquidations, as well as the total outstanding CMBS universe of deals under review (which continues to grow more rapidly from new issuance vs. legacy deal pay down), we now project that the delinquent unpaid balance for CMBS may decrease as low as $25-30 billion by year-end 2014, with a corresponding delinquency rate well below 4%. Outside of any major macroeconomic events, the numerator / denominator effect on this CMBS delinquency forecast hinges on multiple parts, including continued monthly liquidations at the current rate and size (i.e. recent results from the CW Capital auction of distressed debt and timing of loss realization), further issuance of new CMBS according to market expectations (near $100 billion for 2014), and the ongoing maturity payoff rate remaining fairly constant through the end of 2014. On the other hand, a pending 2015 maturity bubble should not be ignored in any long-term evaluation.