Mortgage Risk Rating

Rules Bases Risk Rating
In order to evaluate market risk, credit risk and liquidity premiums associated with commercial mortgage loans, CMLS has developed a risk rating program. Each mortgage is reviewed on an annual basis to assign a risk rating score which reflects the overall level of risk associated with the loan. We review the current operating conditions of the subject property along with a variety of predetermined quantitative and qualitative factors to determine a total credit score.

Judgmental Risk Rating
No rules based scoring system can be valid across the entire universe of commercial mortgage investments as there is simply too much variability in the circumstances around each mortgage. As such, strictly applying a rules based methodology to mortgage valuation will not lead to valid results. Examples of situations that tend not to lend themselves to a rules-based scoring system include second mortgages, construction mortgages, some single-tenant properties, mezzanine financing, and properties that are experiencing temporary adverse conditions.

To maintain consistency across all judgmental valuation assignments, CMLS has developed a comprehensive framework of analysis and documentation to support each conclusion. A panel of experts, working within the pre-determined framework, assesses each file and renders a recommendation based on all available data.

Development of the Spreads used in both the Rules Based and Judgmental Rating System
The key to a mortgage risk rating system is not only a rigorous and well accepted rating methodology but also valid market data.  CMLS obtains such market data from many sources:

• Actual transactional data from the lending programs of our valuation client base, currently representing in excess of $5.1 billion of commercial mortgages
• Market reconnaissance from our affiliate Penmor Mortgage Capital Corporation
• Comprehensive industry interviews from mortgage lenders and investors from across Canada
• Review of corporate bond spreads
• Review of CMBS spreads

Based on the results of the above proprietary research we establish a matrix of spreads covering the commercial mortgage universe.  We believe the combination of proprietary data and research together with our 35 years in the business makes us Canada’s leader in commercial mortgage valuation.

Mortgage Pricing

CMLS has the capability to generate mortgage pricing. Our mortgage valuation software is a state of the art dedicated commercial mortgage servicing platform. This program generates mortgage prices by using industry-standard calculations and bond data sources. Mortgage pricing can be provided with a daily, monthly or quarterly frequency. Our mortgage risk rating and valuation program have been developed to work in tandem together. Changes to the mortgage risk rating or spread matrix can be reflected almost instantaneously in the mortgage price.

For more information about commercial mortgage spreads, mortgage valuation services, mortgage servicing or any other related matter please do not hesitate to contact us:

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