CMBS Ratings Being Reviewed – It’s a Slippery Slope

Bloomberg is reporting that Moody’s is reviewing its ratings of roughly $300B worth of CMBS debt amidst a drop in values. According to the article,

• The review encompasses 52 percent of outstanding U.S. commercial mortgage-backed debt ranked by Moody’s
• The ratings of so-called senior and mezzanine AAA bonds, the top two classes of CMBS accounting for about 72 percent of the securities being reviewed, probably won’t be affected, Moody’s said.

According to Bloomberg, should Moody’s decide to cut the ratings, investors including banks and insurers may need to sell CMBS holdings to maintain required levels of capital.

 Top-rated commercial real estate securities are trading at about 10.3 percentage points more than the swap rate, compared with 1.8 percentage points a year ago, Bank of America Corp. data show.

First of all, this is going to exacerbate the problem, not correct it. Secondly, what is most interesting is that they say that their review of AAA securities probably won’t be affected. Probably huh? Well, we know what happened to the supposed value of those AAA ratings on residential debt after a closer look – default rates ended up being significantly higher than what was sold to investors, and we find ourselves in quite a mess as a result of the storm that set off.

Here’s a better idea: Get rid of the current rating agencies because the fundamental problem that needs to be solved is the lack of trust. There will be no stabilization in the markets until the system can once again instill some sort of trust in investors. Right now, nobody trusts anything anybody says, not bankers, accountants, insurers, rating agencies, and certainly not the politicians.

Similar Posts:

• Commercial/Multi-Family Delinquency Rates Continue Hike Up
• Uncertainty Killing The Recovery in CMBS
• Moody’s Estimates Losses on 2006 Sub-Prime MBS Debt (Residential) At 28-32 Percent
• CMBS Delinquency Rate Continues To Rise; Inland Western Issues $500M CMBS Deal
• Flood of CMBS Rating Cuts Coming