NEW YORK CITY-Loss severities on CMBS were already well above the historical average in the second quarter, Moody’s Investors Service said in August. On Thursday, the ratings agency said losses for the third quarter were even higher, with the average historical weighted loss severity rising to 38.4% from 35% in Q2.

An additional 498 CMBS loans were liquidated at a loss during Q3, at an average loss severity of 52.6%, compared to 42.8% for the 342 loans liquidated in the previous quarter. Moody’s says that the cumulative loss severity rate will continue to rise as more loans from the troubled 2006-2008 vintages are liquidated at relatively higher loss severities, while the near-term forecast calls for a greater percentage of CMBS loans that are in delinquent or in special servicing.

 “Where we are in the real estate cycle can impact the probability that a loan will default and its loss severity,” says Moody’s VP Keith Banhazl in a release. “After commercial real estate markets bottom out and valuations begin to slope upwards, loan defaults should taper off and for those defaulted loans, smaller severities of loss can be anticipated.”

Looking specifically at the universe of fixed-rate, conduit loans, Trepp said earlier this week that September saw a total of $810 million of fixed rate, conduit loans liquidated with losses, while the figure jumped 22% to $990 million for the following month. However, loss severities were better for October, averaging 31% compared to 55% for September.

On the other hand, a Trepp commentary pointed out that the loss percentage values have been reduced substantially by liquidation of loans with de minimus losses—i.e. less than 2%. “We suspect that, in many cases, these are actually refinancings that have take place where the losses reflect small, unpaid special servicer fees or other costs,” according to Trepp.

Absent those loans, which comprised 25 of the 98 conduit loans liquidated during October, the average loss severity jumps to over 53%, in line with the monthly average for 2010 to date. However, that still represents an improvement over the September average with low-loss liquidations removed from the equation: 71%, Trepp says.

Year to date through Sept. 15, there has been a total of $6.2 billion of CMBS debt affected by liquidations, a $4.9-billion increase over the same period in 2009, according to Moody’s. The year’s high point thus far has been July, which recorded both the highest dollar value of liquidations--$1.5 billion, according to Moody’s—and the highest number of loans liquidated, which Trepp says is 220.

Current loss severities vary widely by loan vintage, according to Moody’s. They range from a low of 29.6% for 2000 to a high of 61.0% for 2006. For loans from later vintages, “lax underwriting standards, the absence of amortization and other loan structural features, historically low capitalization rates, reduced market liquidity and the general economic downturn will likely fuel higher loss severities,” Banzahl says. “Severities will continue to be higher for these later vintages, but should average around 30% for earlier vintages.”

Loans backed by healthcare properties have the highest weighted average loss severity at 61%, while office loans have the lowest average loss severity at 35%, Moody’s says. For Trepp, which does not rank healthcare assets in its standing, retail tops the list at 63.9% average losses, followed by office, multifamily, lodging and industrial.