Moody’s Investors Service believes its competitors aren’t tough enough when assessing commercial mortgage backed securities.
The ratings agency says, in a report, that it has been raising the financial cushion it requires from lenders to qualify for investment grade ratings.
Tad Philipp, the Moody’s lead author of the report, says other firms have smaller cushions.
Moody’s says the credit quality of commercial mortgage-backed securities (CMBS) conduit loans is declining.
The share of loans with maximum loan to value ratios (MLTV) exceeding 120%, roughly the high water mark from the pre-GFC peak, has grown rapidly.
Many institutions require an investment grade rating before they will contemplate investing in a commercial mortgage backed security.
Ratings agencies were criticised for their role in the GFC after billions of dollars in bonds, given investment grade ratings, defaulted.
Moody’s says the old saying “those who cannot remember the past are condemned to repeat it” clearly applies to the US commercial mortgage-backed securities market.