Commercial, M-F Delinquencies Rise, but with Silver Lining

Commercial, M-F Delinquencies Rise, but with Silver Lining
March 13, 2009
By: Eugene Gilligan, Senior Editor, Commercial Property News

Commercial and multi-family loan delinquencies increased during the fourth quarter of 2008, as the contracting economy and continuing credit crisis stressed property fundamentals, according to the "Commercial/Multi-family Delinquency Report" released by the Mortgage Bankers Association.

The report found that the 30+ day delinquency rate on loans held in CMBS rose 0.54 percentage points to 1.17 percent. The 60+ day delinquency rate on loans held in life insurance company portfolios rose 0.01 percentage points to 0.07 percent. The 60+ day delinquency rate on multi-family loans held or insured by Fannie Mae rose 0.14 percentage points to 0.30 percent. The 90+ day delinquency rate on multi-family loans held or insured by Freddie Mac stayed constant at 0.01 percent. The 90+ day delinquency rate on loans held by FDIC-insured banks and thrifts rose 0.24 percent.

The MBA analysis looks at commercial/multi-family delinquency rates for five of the largest investor groups: commercial banks and thrifts, CMBS, life insurance companies, Fannie Mae and Freddie Mac. Together, these groups hold more than 80 percent of commercial/multi-family mortgage debt outstanding.

The declining economy, which suffered a six percent decline in GDP from the third quarter, negatively affected loan performance, said Jamie Woodwell (pictured), vice president of commercial real estate research for the Mortgage Bankers Association.

“Job losses, reduced retail spending and problems in the single-family housing market all affected the property markets, and increased delinquency rates,” he said.

Based on the unpaid principal balance of loans, delinquency rates for each group at the end of the fourth quarter were: CMBS: 1.17 percent (30+ days delinquent or in REO); life company portfolios 0.07 percent (60+ days delinquent); Fannie Mae: 0.30 percent (60 or more days delinquent); Freddie Mac: 0.01 percent (90 or more days delinquent); and banks and thrifts: 1.62 percent (90 or more days delinquent or in non-accrual.)

The Mortgage Bankers Association also released a research data note, reviewing the performance of commercial/multi-family mortgages held by banks and thrifts. The report concluded that commercial and multi-family mortgages are the best performing loans-ranking lowest among bank loans in terms of charge-off rates, second and third in lowest in terms of 30+day delinquency rates, and second and third lowest in terms of increases in delinquency rates between the third and fourth quarters.

“[Commercial/multifamily loans] performed relatively well, considering everything that is going on,” Woodwell said. The delinquency rate of commercial multi-family loans in life insurance company portfolios is “extremely low,” and commercial/multi-family loans in bank and thrifts “are about the best performing loans they have,” he said.

The huge amount of delinquent and defaulted loans in the single-family housing sector scared investors away from CMBS in August of 2007, and has led to a huge dropoff in investment in CMBS.

From a CMBS issuance volume of $230 billion in 2007, volume dropped to $12 billion in 2008, with all of that in the first half of the year.

Woodwell said that one of the missions of the government’s Term Asset-Backed Securities Loan Facility, or TALF, is to re-start the CMBS market. Woodwell also believes the markets will find some way to gain momentum again.

“Markets, and investors, are very adept at finding their way to good investments,” Woodwell said.