Page 23

CRE Finance World, Summer 2013

A publication of Summer issue 2013 sponsored by CRE Finance World Summer 2013 21 As might be expected, under all scenarios the 2007 vintage exhibits the most significant balloon risk; the range of expected loss varies between 3.2% and 9.5% across the scenarios.17 Across all scenarios, the universe risk varies between 0.3% and 9.5%. Across all vintages, the risk varies between 1.4% and 9.5% under the most difficult scenario (Scenario 6).18 For recent issuance, conservative underwriting in a higher rate environment at maturity meaningfully impacts projected maturity losses, but overall levels remain modest relative to legacy deals even under the most severe scenario. Will Extension Make a Difference? We also considered whether extension will make a significant difference. First, we measured the incremental lift from more favorable extension parameters on loans that, apart from extension, would not be able to fully refinance their balloon balance. Exhibit 7 The comparable size of loan balances that will be “border-line”, and extended19 Source: PPR, Trepp • For pre-peak vintages, on the margin roughly 1 in 8 loans would be extended under a more favorable lenient extension policy.20 Exhibit 8 Refinance PD comparison with and without extensions Source: PPR, Trepp • Extension does reduce default rates across the universe, as illustrated in Exhibit 8. Pre-peak vintages generally benefit from a mildly reduced balloon default rate versus the respective overall vintage default rates. Conversely, post-peak vintages21 have modestly elevated default rates after extension versus the respective overall vintage default rates. Exhibit 9 Refinance PD comparison with and without extensions Source: PPR, Trepp CMBS Refinance Risk: Vintage Analysis Across Multiple Economic Scenarios “Extension will not produce a material lift from the perspective of reductions in either overall default or loss rates for the CMBS universe, specifically under the conservative refinance parameters.”


CRE Finance World, Summer 2013
To see the actual publication please follow the link above