Conduit Trends – Mid-2024

Our third article on conduit trends incorporates additional data points from conduit transactions that closed between January 2024 and May 2024. In the initial articles, we looked at how debt service coverage ratios (DSCRs), pool diversity, and the spread of issuers’ implied cap rate to interest rate have notably declined in recent years and continue to recede. The stated loan-to-value (LTV) ratio, which had previously trended modestly more conservative, began to increase in 2024. Interest rates appear to be holding steady around 7.0%, which may be a contributing factor to the increased diversification and size of the 10 conduit transactions that closed in the first half of 2024. The actual credit enhancement levels of rated transactions continue to level out or marginally increase.

Summary highlights
-- Pool diversity and frequency continue to be reduced.
-- DSCRs are down by approximately 50%.
-- LTVs are increasing back to late 2021 levels.
-- We note a decline in the spread of implied cap rate to interest rate to -1.25% from +2.0%.