According to research by CS First Boston, one concern about the increasing rate of CMBS issuance is that the quality of underwriting has deteriorated quickly, as originators stretch in terms of credit quality, in order to increase the volume of loans coming to the market. With this in mind, CS First Boston took a quick look at some of the trends it has seen following the latest spate of conduit issuance.
In its view, the drop in credit metrics from 2010 to 2011 is much starker than the change in top-level metrics that has taken place over the first three quarters of 2012. While it certainly has noted some negative trends, such as the increase in more highly levered interest-only loans, CS does not, at least at this point, find these trends overly troubling.
That said, CS generally looked at overall trends in this analysis rather than individual deals. While the overall averages may have exhibited only small shifts, surely some deals are better underwritten than others.
Deals still need to be evaluated on a case-by-case basis, especially as investors gravitate further down the credit stack. CS has, for example, seen loans in some deals that have again been made using pro forma assumptions. While these may be justified on an individual basis, as they have learned in the past, it can be a slippery slope; a quirk in a single loan can quickly manifest itself to become a common trend across all deals.