In addition, since the loans from these vintages were originated at or near peak rental levels, 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.
We also expect that distress among property owners will become more pervasive because of deteriorating CRE fundamentals and the lack of mortgage refinancing.
We believe this new reality will cause an increase in both term and maturity loan defaults.
- The 1995-2000 loan vintages possess the highest cumulative default rates, ranging from 7.29%-11.75% by loan count. The loan default rate for the 1998 vintage increased to 9.19% from 7.78% in 2007, largely reflecting maturity defaults, which accounted for 80 of the 110 defaults experienced by this vintage in 2008.
- The 2006 vintage experienced a significant increase in its cumulative default rate, as it entered its third year of seasoning, one of the more risky periods for default.
