Fitch Ratings has issued a report claiming disparities in underwriting standards between large, small and non-bank US CMBS originators, leading to an “overall decline in credit quality in recent months.”
Fitch claimed based on an analysis of 30 originators that the largest banks have the strongest credit metrics, while smaller banks or non-banks have the weakest. This comes as larger banks contribute less to new deals and smaller originators flood the market.
“The influx of smaller originators to the CMBS market has led to weaker deal metrics,” according to the report. “Large issuing banks are becoming more vocal about trying to increase the percentage they contribute to their securitizations.”
“CMBS investors are becoming increasingly concerned about the ability of conduit originators to maintain credit quality given the growing number of loan originators,” said Fitch managing director Stephanie Petosa.
Fitch issued another report pointing specifically to four CMBS transactions, claiming that credit enhancement levels declined even though credit quality either remained the same or declined.
The deals named are COMM Mortgage Trust, 2015-CCRE23; CSAIL Commercial Mortgage Trust, 2015-C2; Wells Fargo Commercial Mortgage Trust, 2015-C28; and GS Mortgage Securities Trust, 2015-GC30. They were rated by some combination of Morningstar, Moody’s and Kroll Bond Rating Agency.
“Conventional wisdom for new US CMBS deals dictates that credit enhancement goes up as loan quality slips,” but these deals are “moving against that theory,” the report states.
“Had Fitch rated each of these four CMBS deals, either the credit enhancement would have been higher at each rating level or the ratings themselves would have been lower,” added Huxley Somerville, head of the agency’s CMBS group.