Tuesday, September 1, 2009

CMBS Delinquency Report Improves on Aberration

Realpoint - the competition enhancing, transparency embracing, antithesis of the big three NRSRO's - has released it's monthly CMBS delinquency report covering the time period through July 2009. At first glance, my illustrative chart above would indicate that the month of July was a respite of sorts for the agglomeration of toxic underwriting, better known as commercial mortgage backed securities (CMBS). Thanks to Realpoint though, we know that July's decrease was the result of $4.8B worth of loans that have been conveniently returned to "current" status. Apparently, something "went wrong" with these loans in June, causing an insufficient stream of cash to flow down to apprehensive bondholders. We don't have any hard information as to what exactly happened to this $4.8B slug of debt, but it's likely that some sort of temporary workout/modification/capitulation occurred through the efforts of whatever entity is charged with servicing this sludge. I doubt that these loans will ultimately escape the grasp of delinquency, as the current US economy is extremely bifurcated in terms of businesses access to capital and general viability/solvency.

Basically, we've come to a fork in the road where, as a corporation, you are either reveling in the amount of capital that you have access too, or you are slowly burning cash as you drift into the abyss. Furthermore, you are either growing steadily more confident in your firm's top-line and new order prospects, or you are in denial that any economic improvement has occurred since January. My guess is that, at the heart of this $4B "hiccup", there are businesses which fit the latter description, and have become unable or unwilling to honor the terms of their lease agreement. Modifying these loans will not repair the deteriorating fundamentals of the businesses that are struggling to pay for the storefront. This dynamic will continue to characterize the US economy in the months to come. Sphere: Related Content

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