Higher Delinquencies Affect Securities' Investors.(Special Report)

Byline: Amilda Dymi

New York-In the past few years investor caution has been the order of the day in the residential mortgage marketplace and higher default rates are adding caution to commercial mortgage security investors.

To best assist investors purchasing nonperforming commercial loans earlier this year, Fitch Ratings said it has turned to 30-day delinquencies as an early leading indicator of future commercial mortgage backed securities performance.

"High-profile loans secured by larger properties, which were often not stabilized at transaction issuance, have begun to default," said Susan Merrick, managing director and head of the U.S. CMBS group at Fitch Ratings.

Furthermore, Ms. Merrick said, "Though capital market illiquidity remains problematic, the recent defaults underscore a shift in which the deepening recession has impacted real estate fundamentals such that term risk outweighs balloon risk as an immediate concern."

The rating agency noted it "continues to expect that performance defaults on larger loans will push up the loan delinquency index in coming months, to approximately 3% by year-end 2009."

More specifically, Fitch expects to see pools consisting of many larger assets, such as the 2006 and 2007 vintages, which "are likely to be the largest contributors to delinquencies."