Without naming any names, the following is a quote from a recent rating action on a CMBS deal that demonstrates the continued failure of rating agencies.
Fitch analyzed the transaction and calculated expected losses by assuming cash flows on each of the properties decline 15% from year-end (YE) 2007 and property values decline 35% from issuance.
Are they telling us that they think cash flows will only decline 15% and that property values will only drop 35% since issuance? What kind of stress test is that?
They end up with 5% estimated losses on the deal, including a forecast on some of the maturity defaults. On the same deal, Citi is forecasting 10.3% losses over the life of the deal in their stress test.