NEW YORK CITY—While the CMBS market in 2016 may face headwinds from a variety of directions, continuing declines in underwriting will be an area of particular focus. So says Fitch Ratings, which notes that new issuance credit metrics have worsened across the board in 2015, although the ratings agency maintains a "stable" rating for CMBS.

Of particular importance, Fitch says in an outlook report, has been "the bar-belling" of metrics, with some Fitch-rated loans receiving significantly worse than average cash-flow haircuts, debt service coverage ratios and loan-to-values. The average credit enhancement at 'AAAsf' through third-quarter 2015 was 50.0 basis points higher than the 2014 average and 187.5 bps higher than the 2013 average. It's also twice as high as the average in 2007, Huxley Somerville, managing director and head of US CMBS at Fitch, says in a video segment.

The increase in CE would be even greater but for the increase in incorporating large loans with credit opinions no lower than "BBBsf" into conduit pools. "If underwriting metrics continue to decline in 2016, the Fitch CE will continue to rise," according to Fitch's report.

Another similarity between '15 and '07 is LTVs: eight years ago the average was 110.7, while year to date it has come in at 109.6. However, Somerville points out a key difference between then and now.

In underwriting CMBS deals at the previous cycle's peak, "The 2007 numbers were calculated with pro forma income, and pro forma income is not occurring today," Somerville says. "If it were to occur, we would disregard it anyway." Moreover, Somerville thinks that underwriting could stabilize in '16, "because some of the smaller originators may pull out of the market. I also believe that some of the larger issuers will ensure that property diversity, loan diversity is not paid for by poorer-quality loans."

Other potential headwinds for CMBS in the coming year include the potential for higher interest rates and the refinance wall made up of loans from 2006 and '07. CMBS faced these potential challenges at the start of this year, but their influence on the sector proved to be minimal, and any potential impact in the coming year "should also be muted."

The refinance wall, says Fitch, is "a shadow of its former self, as maturing loans have been able to refinance. There is a concern about adverse selection in the remaining loans. However, as the majority of the loans remain performing—and have coupons that, on average, are higher than the current interest rate—their ability to refinance should be relatively smooth."