Remember when a 1% default CMBS default rate was a big deal? Aswe all now know, those are the good old days. We are heading for a$12% default rate by year's end, if Fitch Ratings is correct in itslatest analysis. The company has reported there will be $100billion in special servicing by that point, up from the current $50million. Retail and hotel are the most troubled asset classes. Forall that, existing CMBS has been experiencing a rally, with year todate returns more than 20% over benchmark government securities.Some of that is due to rising equity markets and a growing sensethat a recovery - at least on Wall Street - is approaching. Some ofit is also due to the unprecedented government programs thrown atthe problem, such as TALF and the soon to be launched PPIP. Still,though, few expect to see new issuance even come close to rivalingthe halcyon days of the early 2000s - at least until certainsafeguards and changes are in place. The rating agencies for one.Last week the White House released a plan to reform credit ratingagencies; its provisions include barring rating firms fromconsulting with companies they rate and disclosure of "pre-ratings"before a firm is picked. Some are saying it doesn't go far enough;others protest yet another government regulatory layer - the planalso calls for a separate office to oversee the rating agencies.Like with so many of these new programs it is difficult to saywhether the cure is worse than the illness, especially withfinancial metrics all over the board: a 12% default rate versus a20% return year to date. Can anyone say definitively either issolely the result of misguided/insightful governmentintervention.

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Erika Morphy

Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.