Fitch Ratings is forecasting a new wave of securitization of nonperforming commercial real estate (CRE) loans.
Citing a recent $224 million purchase price on a pool of loans by Rialto Capital Management, Fitch Ratings believes the CRE industry is at the ‘beginning of a trend, given the volume of distressed CRE lingering with servicers and lenders and the increased use of loan sales to dispose of troubled CRE loans.’ The ratings agency notes that since the first quarter of 2009, $161 billion of commercial mortgage-backed securities (CMBS) loans have been transferred to special servicing, and since 2010, the volume of loans in specially servicing has consistently exceeded $90 billion.
‘Over the next five years, as the worst performing and peak origination vintage loans reach maturity, we expect the pressure on lenders and servicers to work out loans to intensify,’ says Fitch Ratings. ‘While common resolution strategies for troubled CRE loans include modification, foreclosure and liquidation, discounted payoff, and loan sales, Fitch has observed an increased use of loan sales, particularly for smaller balance loans. Bulk purchases of non- and sub-performing loans are the most likely candidates for nonperforming loan (NPL) securitization, and Fitch expects near-term NPL transactions to originate with investor purchases of troubled bank loan portfolios.’