Economic Weakness Continues to Weigh on Commercial Mortgages

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According to the Mortgage Bankers Association's (MBA) latest Commercial/Multifamily Delinquency Report , the delinquency rate for loans held in CMBS is the highest since the series began in 1997.  Delinquency rates for other groups remain below levels seen in the early 1990's, some by large margins.

Between the fourth quarter 2009 and first quarter 2010, the 30+ day delinquency rate on loans held in commercial mortgage-backed securities (CMBS) rose 1.54 percentage points to 7.24 percent.  The 60+ day delinquency rate on loans held in life company portfolios increased 0.12 percentage points to 0.31 percent.  The 60+ day delinquency rate on multifamily loans held or insured by Fannie Mae rose 0.16 percentage points to 0.79 percent.  The 60+ day delinquency rate on multifamily loans held or insured by Freddie Mac increased 0.05 percentage points to 0.24 percent.  The 90+ day delinquency rate on loans held by FDIC-insured banks and thrifts rose 0.32 percentage points to 4.24 percent.

"Weakness in the economy has continued to weigh on commercial properties, which in turn weighs on the mortgages they back," said Jamie Woodwell, MBA's Vice President of Commercial Real Estate Research.  "Economic growth, specifically in areas of jobs and consumer spending, will be key to stabilizing the commercial property and mortgage markets going forward."

Construction and development loans are not included in the numbers presented here, but are included in many regulatory definitions of 'commercial real estate' despite the fact that they are often backed by single-family residential development projects rather than by office buildings, apartment buildings, shopping centers or other income-producing properties.

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

The analysis incorporates the same measures used by each individual investor group to track the performance of their loans.  Because each investor group tracks delinquencies in its own way, delinquency rates are not comparable from one group to another.

Based on the unpaid principal balance of loans (UPB), delinquency rates for each group at the end of the first quarter were as follows:

• CMBS:  7.24 percent (30+ days delinquent or in REO);

• Life company portfolios: 0.31 percent (60+days delinquent);

• Fannie Mae:  0.79 percent (60 or more days delinquent)

• Freddie Mac:  0.24 percent (60 or more days delinquent);

• Banks and thrifts:  4.24 percent (90 or more days delinquent or in non-accrual).

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