NEW YORK CITY—On both new-issue and legacy CMBSloans, the latest reports show a decline in the metrics.Fitch Ratings said last week that leverage andother key metrics for US CMBS slipped again in the second quarter,pushing up credit enhancement levels for new deals, whileStandard & Poor's has expressed concern aboutan increase in the percentage of interest-only loans in conduittransactions. Trepp reported last week that whilethe overall delinquency rate dropped in July, it did so by only onebasis point.

Average AAA CE for Fitch-rated transactions rose to 24% in Q2,up 1.125 percentage points from Q1 and 2.375 percentage points fromthe year prior. “Fitch has quoted credit enhancement above 25% onseveral deals it ended up not rating, which begs the question ofwhether super senior credit enhancement will soon be poised for amove above 30% if the trend continues,” says managing directorHuxley Somerville. Q2 also saw average BBB- CEincrease by 25 bps quarter over quarter and 100 bps year overyear.

The higher CE occurs as the percentage of loans withFitch-stressed debt service coverage ratios below 1.0x rose to16.4%, up from just 1.9% Y-O-Y. Additionally, the percentageof loans with Fitch-stressed loan-to-value ratios above 100% roseby over five percentage points quarter to quarter to 71%. Thepercentage of full-term IO loans also rose by almost fivepercentage points last quarter, to 20.5%.