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CRE Finance World, Winter 2012

CMBS Servicer Workouts Maintain an 86% Recovery Rate Credit Crisis Four Years On Stephanie Petosa Managing Director Fitch Ratings C rates for liquidated loans declined to 69% for 2009 •to performing).Returned to master servicing (also often called returnedTypes of Resolution MethodsResolution methods fall into seven categories:MBS special servicers have resolved $93.0 billion since2007, with $74.4 billion resolved in the 21 months endedSept 2011. The recovery rate for resolved loans hasremained at or better than 86% since 2007. Recovery through YTD 2011 from 83% in 2007 (see Addendum, page 61). And six liquidation methods: Of the $74.4 billion resolved in the past 21 months, more than •DPO. 55% of the 4,972 resolved loans were modified and transferred •Note sale. back to master servicing, and the remaining have been liquidated. •Foreclosure sale. Fitch Ratings defines resolved as any loan that moved out of special servicing and defines liquidated as the subset of loans •REO liquidation. transferred out of special servicing that now carry a zero balance. •PIF. As the bulk of resolutions occurred from 2010 through June 2011, •Issuer buyback. this report will focus on that 18-month period. The special servicing asset manager will choose the resolution Higher Balance Loans Modified: Higher balance loans were more strategy or strategies to be followed based on the real estate likely to be modified than liquidated. The average balance of securing the loan, circumstances of the default, and how to modified loans was $28.3 million compared with $8.1 million for maximize the net present value to investors. liquidated loans (excluding the $4.1 billion ESH loan). Returned to Master: Over one-half of the resolved loans, 55% by Too Early to Determine Success of Modifications: The impact and balance, were returned to master servicing. While the majority of effectiveness of modifications on resolutions rates will depend on these loans were modified, almost 31% (by loan count) were returned commercial real estate (CRE) and general economic fundamentals. to performing without a modification. This reflects the CMBS special servicers’ capabilities to enforce borrowers’ commitments, Note Sale Most Common Liquidation Method: Note sale followed according to their loan documents. Of the remaining 69% returned by discounted payoff (DPO) and paid in full (PIF) were the most to master servicer, 65% were classified as modified via other or common forms of liquidating defaulted loans. combination (meaning the majority of modifications could not be classified as a specific change in terms but required more explanation 2007 Vintage Tops Resolutions: The 2007 vintage had the most or were classified as a combination of changes in terms) and 22% resolved loans, accounting for 36% of total resolved loans. It was as maturity date extension only. followed closely by 2005 and 2006 vintages at 20% each. Figure 2 Figure 1 Resolution Types: 2010–Sept 2011 by Loan Count Vast Majority of Resolved Loans Return to Master Servicing CRE Finance World Winter 2012 58


CRE Finance World, Winter 2012
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