Saturday, March 6, 2010


This is where you go to buy distressed loans, but only the ones you really don't want anyway. They also price CMBS loans in Bloomberg, but they do a horrible job at it. This partly due to the quality of the data in Bloomberg, but its also, more disturbingly a result of a blatant misunderstanding by DebtX.

Just to pick out one point, they'll take a pari passu loan part that represents 30% of the total senior mortgage, which has, say, a 50% LTV - they'll use 15% (30%*50%) to represent the LTV for the pari passu loan in question! Needless to say, I think their information is worth somewhere close to $0 in value, similar to the loans they broker.

So, when I read articles like this, it's only fitting that the journalist has an equally grandiose understanding of what she is writing about - and it was not even corrected by DebtX.

Loans sold during January went for 76.7 percent of par, the company said. That's up from 75.9 percent of par for loans sold during December.

DebtX based its data on the pricing of almost 60,000 loans in January. Those loans had principle of a little more than $700 billion.

That number doesn't reflect loans "sold", it just reflects the value from their pricing model of the 60k or so loans in the CMBS universe that they model, poorly. There was not 60,000 loan transactions in January - really?

Principles are what you should add to your bag each day on your way into the office before printing this kind of dribble without even a basic understanding of what you're writing about, and principal is the number of dollars, other than interest, that the bond holder expects to get back at maturity. Remember, princiPAL is your friend.

Maybe I was too mean - we all make mistakes.


crabsofsteel said...

Interesting post, which leads me to a question. How is the data on Bloomberg any worse than the data on any of the other services? Trepp cleans it up a bit, but it's all the same data coming from the servicer.

Also, DebtX may be messed up for split loans but I would think it has some sort of value as an objective benchmark. If what you're saying is true, that the loans which trade here are only the non-performing ones, then I agree that they have to be making things up for loans which are still performing. However, if both good and bad loans trade here and there is sufficient trading to see markets, this data could be pretty profoudly impacting. Taking their split-loan error into account which prices split loans higher than they should be priced, saying that CMBS collateral is worth 76.7% of par value implies eventual losses of 23.3%. Which sounds about right to me.

Dark Space said...

I don't think Bloomberg's data is worse than the others - debtX displays their results in BBG, and uses the data from Bloomberg.

The pari passu loan is just one error. Actually, if they cleaned it up, maybe it would be useful - but I would imagine there is no correlation between deals ranked by debtX prices and any third party model based on what I've seen (of course now I'm going to compare the two the next chance I have).

RJ said...

honestly isn't all the data out there just terrible? Servicers are so overwhelmed it's sad.

Specifically, have you ever tried to get data from Wachovia? It's like pulling teeth.

crabsofsteel said...


What data are you trying to get from them, other than that which they already disclose via the servicer supplemental report? As master servicer, I don't think they're so bad.

Dark Space - interested in what you find. We're going to be taking a look at them too. I don't think you need 60,000 loans to trade to be able to benchmark loan prices.

Anonymous said...

I'm glad someone discredited this...granted, DebtX has more data points than most on the secondary market for commercial mortgages but what they sell vs. what is actually contained in the conduit universe are very different. I will concede that knowing what a defaulted value goes for in the secondary market gives them some advantage in determining residual, and the rest is just math. But how these things are tracked in "real time" is really misleading and certainly not worthy of a news article. Take their prices with a big boulder of salt.

As for Bloomberg data, I haven't crosschecked a lot of fields with the remittance reports but I have consistently found errors on the ID of the special servicers.

crabsofsteel said...

After a little research, I found out that DebtX is not a place where the specials sell off non-performing CRE loans. Instead, it's where the FDIC goes to sell off CRE loans which were on the books of banks it took over. Apparently, they have been used for a few thousand trades. The prices they give for some very visible loans looked reasonable, including one gigantic split loan (guess which one).

Concrete Jungle said...

Exactly. To clarify - I was pointing out in the post, that there were NOT 60,000 loans sold in any market - the journalist just misspoke.

The FDIC actually hires 3rd party and internal asset managers, first, who first attempt to sell the good assets, move them to better-suited banks, or partner with local (to the asset) real estate investors. All the crap ends up on DebtX.