According to the Trepp January Payoff Report, the percentage of loans paying off on their balloon date has exceeded 60 percent for the fifth time in the last six months. In February, 61.8 percent of loans reaching their balloon date paid off--a decrease of about five percentage points from the January reading. The February rate of 61.8 percent is well above the 12-month moving average of 49.2 percent. (This number sums the averages of each month and divides by 12, there was no balance weighting across the months.) Six months ago, we noted that the payoff rate could move to the upside for the remainder of 2012. We mentioned that loans reaching their maturity date would likely be more heavily populated with loans from earlier vintages, and that assets from that time frame were made with lower leverage and more reasonable valuations. The result should be better payoff numbers. Data from the past six months has confirmed this trend.
The makeup of the underlying pool is certainly a consideration. Loans from older vintages will have a much better chance of paying off on time than loans from 2007. However, with new issue CMBS spreads at their tightest levels in four years, and with the Treasury curve near historic lows, more loans should be able to refinance now than at any time since 2008. So even loans with skinny DSCR levels from the 2006 and 2007 stand a fighting chance of obtaining financing.
By loan count (as opposed to balance), 62.6 percent of loans paid off. The 12-month rolling average on this basis is now 57.7 percent.
Below is the data for the last 55 months. The second column shows the percentage of loans (by balance) that paid off in the month of the maturity date. The third and fourth column contain the percentages that paid off (again by balance) after three months and six months, respectively. (After three 3 months, the percentage of loans that payoff really starts to level off.) In the last column are the percentage of loans, by count, that paid off in the balloon month.
It is important to note that this statistic was developed for the purpose of honing extension scenario assumptions. The analysis looks only at loans that have gotten all the way to their balloon date without having prepaid or defeased. If a loan paid off or defeased in the months prior to maturity (one month, five months, fifty months--it doesn't matter), it is not part of the percentages above. The table only contains data on loans that survive to their balloon date.
Again, since so much attention was and is being paid to the extension trade, we were aiming for a measure of what percentage of loans would fail to payoff. Hopefully the data above will allow investors to refine their expected extension scenarios--particularly for IOs and first pay bonds. With regard to our methodology, we exclude a whole host of loans from the analysis.
The pool counts only fixed rate, US conduit loans (no floaters). All defeased loans are excluded. All ARD loans (anticipated repayment date) are also excluded, as the borrower is permitted to extend these loans for many years without triggering a default. Any loan that is delinquent going into the month that it is slated to payoff in is not included in the results. With regard to the last point, we wanted to measure only the loans that were "clean" going into the balloon month so that we could isolate the percentage of loans that were extending due to an inability to obtain refinancing rather than ongoing cash flow issues.