CMBS Leverage Reaches Five-Year High

For the first time since 2007, the size of mortgages bundled into bonds will exceed 100 percent of building values, according to a recent Bloomberg article. The larger loans are helping landlords pay off debt and satisfying investor demand for higher yields, but they are also raising concerns that banks are using the same tactics that led to record defaults.

In 2011, $28 billion in commercial mortgage-backed securities was issued. One bank — Wells Fargo & Co. — expects to surpass that figure this year. It recently adjusted its 2012 CMBS issuance forecast to $35 billion from $25 billion. Credit Suisse Group AG forecasts $45 million in 2012 issuance. Wall Street has arranged for about $16.8 billion in CMBS so far this year, compared with a record $232 billion in 2007.

Underwriting standards for commercial-mortgage bonds have improved since 2006 and 2007, according to the report. The level of delinquency on debt issued in 2007 stands at $23 billion — the most of any year. Late payments on CMBS loans reached a record-high 10.1 percent last month.