Mortgage risk rating (loan reviews)
Get an objective assessment
CMLS Financial performs annual independent loan reviews on mortgage files across Canada. We provide organizations with an objective review of their commercial mortgage investments and, in doing so, can help remove inherent conflicts within an organization.
Our independent risk rating system is completely transparent, documented and auditable, and is accepted by auditors, investment consultants and other stakeholders. It's used on every file in order to ensure consistently objective, reliable results.
Our team of real estate credit analysts risk-rates virtually every commercial mortgage loan type in Canada: fixed-rate and floating-rate term mortgages, interim construction mortgages, second mortgages, mezzanine loans, lines of credit and others.
The risk rating system we employ depends on the type of loan under consideration.
Weighted scoring system
Our specialists will utilize either our proprietary risk rating scoring (best suited for institutional-quality first mortgage investments) or the client's internal scorecard to review mortgages on an annual basis and assign a rating that reflects the overall risk level associated with the loan. We review the current and normalized operating conditions of the subject property, along with a variety of predetermined quantitative and qualitative factors to determine a total credit score out of 100.
Professional judgment system
No scoring system can be valid across the universe of commercial mortgage investments; there's simply too much variability in circumstances. Given the spectrum of circumstances, strictly applying a rules-based methodology to mortgage analytics may preclude getting valid results.
Examples of situations that typically don't lend themselves to a scoring system include second mortgages, construction mortgages, certain single-tenant properties, mezzanine financing and properties that are experiencing temporary adverse conditions.
In cases where we believe the scorecard may not be appropriate, we utilize a comprehensive framework of analysis and documentation to review and support a risk rating conclusion. Our panel of experts, working within a pre-determined framework, assesses each file and renders a recommendation based on all available data.
Our experts calculate the fair market value and resultant price of a mortgage by using industry-standard calculations, an assessment of the mortgage, the CMLS Financial Commercial Mortgage Spread Matrix and current Government of Canada bond market data. The combined market yield is then used to mark the mortgage to market. These market values, in turn, are aggregated to create a pooled mortgage fund Net Asset Value (NAV) calculation.
Our mortgage pricing services can be provided on a daily, weekly, monthly or quarterly basis, depending on your needs. Outputs include the price (expressed out of 100) together with the resultant discount or premium, as well as standard fixed income metrics such as duration, average duration and others.
CMLS Financial commercial mortgage spread matrix
- The key to accurately pricing a mortgage is not only employing a rigorous and well-accepted rating methodology, but also having access to valid and timely market data. We develop our market spreads from sources that include:
- Actual transactional data from the lending programs of our valuation client base, currently representing in excess of $8 billion in Canadian commercial mortgages and involving 20-30 unique transactions every month from a diverse group of mortgage investors.
- Comprehensive industry interviews with mortgage lenders and investors from across Canada. We speak to decision makers at financial institutions, pension funds, insurance companies and other mortgage participants to gauge market sentiment, which supports the real transactional data we see.
- Reviews of corporate bond spreads and the debentures issued by real estate investment trust and operating companies.
- Reviews of CMBS spreads.
Based on the results of this proprietary research, we establish a matrix of spreads covering the Canadian commercial mortgage universe. Our combination of proprietary data and research, together with nearly 40 years of experience in the business, has made us the Canadian leader at commercial mortgage analytics.
CMLS Mortgage Analytics
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