It's all cupcakes and unicorns in CMBS

CMBX.4.AMs are at 82, up from 76 at the start of the year, and CMBX.4.AJs are at 67, up from 57 at the start of the year.

Issuance Is Ramping Up:

Deutsche Bank will sell about $941 million in commercial mortgage-backed securities this week, kicking off a busy period for a market that may be confronting new headwinds.

It's part of the more than $6 billion in new issues that are coming as investors are beginning to question the market's ability to sustain gains won since November, analysts said. In addition to the impact of supply, growing speculation of Middle East unrest and lingering unease over the lasting power of a Greece bailout have made investors wary.

Freddie is talking their 10year from the latest K series (FREMF 2012-K17) at +63.

One of the TOP stories this morning on Bloomberg was "Manhattan Lures REITs Capitalizing on Soaring Rents: Mortgages"

Pretty much everything is going great until that girl with the tattoos bends you over the counter and rams a cupcake up your pachooka. All us guys thought y'all were getting into your scivvies to have a friendly cupcake fight followed by some light oil wrestling, then the wild one had to get all jammed up and take it in a totally different direction. We're not entirely disappointed in the outcome, but do expect some basic rules of sportsmanship to be adhered to.

I'm still of the opinion that the girl with all the tattoos is about to try to ram something up my pachooka when I least expect it. I'm not totally adverse to the idea, but don't bother calling to sell me bonds today.

All is Lost!

From Bloomberg.

More than half of commercial mortgages packaged into bonds in 2007 and coming due next year may fail to refinance as maturities reach the most evah and lenders pull back, according to Standard & Poor’s.

Nearly 30% of 2007 CMBS loans carried 5 or 7 year maturities...

About $55 billion of property loans sold as securities come due in 2012, with $19 billion of those originated in 2007, S&P analyst Larry Kay said in a report today. The five-year mortgages have a 50 percent to 60 percent likelihood of failure to refinance, the New York-based analyst said.

Next year will “usher in the first major wave of maturities from the 2007 vintage, which were issued during a frothy period at the peak of the market,” Kay said.

Is the Wave of Mutilation finally upon us? Some say yes...

“Retrenchment in the capital markets and among other lenders in the third quarter of 2011, which has continued into the current quarter, dims the refinancing prospects.”

So, it's kind of a big deal - no money is being lent, the loans maturing contain more underwater crap than ever before, and any money that is being lent is under onerous terms :(

Loans underwritten during the peak five years ago will be challenged by tighter lending conditions, limited borrower equity in the buildings and the large size of loans relative to current property values, S&P said. Property values have tumbled 42 percent since 2007.

Lenders are willing to write a mortgage for a maximum of 70 percent of a building’s value, meaning about 63 percent of loans taken out at the height of the property market bubble will be hard to refinance unless the borrower injects additional cash, S&P said.

Residential - Refi the entire market?

So, the government is going to cause a ginormous refi wave in resi-land, at least that has been the rumor for well over a year now. Instead of demanding MORE collateral from homeowners who owe mortgage debt that is no longer protected adequately by the underlying collateral's value, you constantly hear some politician babble on about saving the poor non-delinquent mortgagor from having to meet obligations that he agreed to in writing and backed with the most precious collateral (the roof over his family's head) - I find the entire affair somewhat disgusting if you cannot tell. You agreed to make payments, you put up collateral in the event you cannot pay, and those are the terms.

I'm sure I will not be consulted for my opinion, but the rumors are now starting to crescendo, and I am really interested in your thoughts on how this might be structured and how to gain from it in the market... PLEASE LEAVE YOUR THOUGHTS IN THE COMMENTS!

i.e.

• Do they only allow Agency mortgages to refi? (Ginnie too, or just the two in conservatorship?)
• What credit characteristics are allowed? Low FICO? Underwater mortgages? Currently not-late?
• Do borrowers have to pay additional amounts to help protect the mortgages (they have higher LTVs, do they pay higher PMI? Is there some new product to help protect the lender against the greater sensitivity to both credit and systemic valuation changes?)
• Who gets to originate the mortgages? and thus receive the origination fees?
• Servicer? Can BOA originate and service them but put the risk to the Agency?
• Will they be securitized - who is going to buy this, and what type of protections are there going to have to be (obviously at a cost to the taxpayer) to protect these new investors?
• Who else benefits?
• Who gets hurt? Does my Ginnie IO from 2009 origination, low coupon, ramp up and flicker out? How about my Fannie IO from 2005, high coupon? What about POs (they seem a little rich)?

I actually can see a path that is economically feasible, politically palatable, and hugely profitable to certain key players in the industry. If you are a policy maker, the Bernank, or Obama bin President, please email me at credarkspace@gmail.com for a detailed plan. All jokes aside, I am working on it, please don't do anything stupid that will destroy our economy in the meantime.