OREANDA-NEWS. April 14, 2015. New U.S. CMBS defaults continued a six-year trend of declines with the annual default rate falling to a level not seen since 2008, according to Fitch Ratings in a new report.

The annual 2014 CMBS default rate was 0.6% compared with 0.9% in 2013. Fitch projects new CMBS term defaults to hold steady this year. Fitch also projects the cumulative CMBS default rate (currently at 13.3%) to decline slightly in 2015.

Not surprisingly, loans from 2005-2007 deals led new defaults again. Peak vintage defaults made up 89.7% of all defaults and consisted of 39.3% from 2007, 29.5% from 2006 and 20.9% from 2005. One notable change year-over-year was retail defaults emerging as the largest contributor by balance in 2014. At \\$1.7 billion and comprising 44.5% of all defaults, retail overtook office, which had led for the past three years.

Two possible challenges facing CMBS in 2015 will be the potential for higher interest rates and the encroaching refinance wall made up of 2005-2007 loans, according to Senior Director Brook Sutherland. 'Most peak vintage CMBS loans are still performing and have coupons that are, on average, higher than current mortgage rates,' said Sutherland. 'In most cases this should allow most CMBS loans to refinance at maturity, though a more rapid increase in interest rates than expected could prove problematic.'

CMBS 2.0 defaults will likely follow a more traditional curve compared to peak vintages, , with defaults taking place later in their loan terms. From CMBS 2.0 vintages (loans originated from 2010 to the present), six loans totaling \\$54.1 million defaulted in 2013. In 2014, there were 12 CMBS 2.0 loan defaults totaling \\$101.6 million.

Fitch's 'U.S. CMBS 2014 Loan Default Study' is available at 'www.fitchratings.com' or by clicking on the above link.