The economy is about to experience its second mega-wave of loan defaults, potentially triggering massive losses in securities backed by commercial mortgages, Standard & Poor’s said in a new report Monday.
“With almost 29,000 loans… now in the riskiest period of their lives with respect to default… Standard & Poor’s expects default levels to rise,” the ratings firm concluded in its default study.
The report comes just as rays of hope have appeared on the broader financial horizon. Residential housing prices and sales volumes have risen recently in many markets, and investor interest in residential mortgage-backed securities has risen with them. These factors have led many economists to predict modest growth – meaning an end to the recession – by mid-2010.
Still, Standard & Poor’s said, a number of factors in commercial-property lending serve as a reminder of the U.S. economy’s still-fragile state.
In particular, they forecast serious problems with rental properties that were at peak capacity near the height of the boom. Significant recent drops in the cost of buying and renting residential property, the firm said, means “three- and five-year leases coming due for lease rollover in 2009 could cause significant rental declines.”“We believe that the borrowers faced with possible property operating cash flow shortfalls and declining market values will be less likely to fund debt service shortfalls,”
“With almost 29,000 loans… now in the riskiest period of their lives with respect to default… Standard & Poor’s expects default levels to rise,” the ratings firm concluded in its default study.
The report comes just as rays of hope have appeared on the broader financial horizon. Residential housing prices and sales volumes have risen recently in many markets, and investor interest in residential mortgage-backed securities has risen with them. These factors have led many economists to predict modest growth – meaning an end to the recession – by mid-2010.
Still, Standard & Poor’s said, a number of factors in commercial-property lending serve as a reminder of the U.S. economy’s still-fragile state.
In particular, they forecast serious problems with rental properties that were at peak capacity near the height of the boom. Significant recent drops in the cost of buying and renting residential property, the firm said, means “three- and five-year leases coming due for lease rollover in 2009 could cause significant rental declines.”“We believe that the borrowers faced with possible property operating cash flow shortfalls and declining market values will be less likely to fund debt service shortfalls,”
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