Delinquencies Improving for Commercial Mortgages

GlobeSt. – Delinquency rates for mortgages backed by commercial and multifamily properties have improved in recent months with the recovery, the Mortgage Bankers Association says.

However, Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research cautioned the improvement is not everywhere and to the same degree. “Performance is still property-type dependent, with the properties that saw the most immediate and dramatic impacts from the pandemic—lodging and retail—still experiencing considerably more stress than others but showing improvement. Delinquency rates are down significantly for those property types and remain muted for others.” 

However, he expressed confidence for continued downward pressure on delinquency rates as more later-stage delinquencies are worked through, noting what happens with early-stage delinquencies will largely be a function of the broader economy.

In August, outstanding current balances of commercial and multifamily mortgages increased to 96.6% up from 95.5% a month earlier with balances 90 and more days delinquent or in REO, down to 2.2% from 2.9 % from July.

Delinquencies of under 30 days dropped to 0.8% from 1.1% a month earlier with those 30-60 days delinquent and 60-90 days delinquent unchanged from July at 0.3% and 0.2% respectively.

Loans backed by lodging and retail properties continued to see the greatest stress but improved in recent months with 13.4% of the balance of lodging loans delinquent, down from 16.5% in July. 8.5% of the balance of retail loan balances were delinquent, a decline from 9.0%.

Non-current rates for other property types were at lower levels during the month with 1.5% of the balances of industrial property loans non-current, a drop from 1.8% a month earlier; 2.0% of the balances of office property loans non-current, down from 3.2%; and 1.2% of multifamily balances were non-current, down from 1.5%.

The concentration of hotel and retail loans made CMBS loan delinquency rates higher than other capital sources.

August saw 6.9% of CMBS loan balances non-current, down from 8.2% a month earlier; 2.0% of FHA multifamily and health care loan balances were non-current, declining from 2.8%; and 0.6% of GSE loan balances were non-current, down from 0.9% a month earlier.

Bucking the downward trend, 1.9% of life company loan balances were non-current, up from 1.7% from a month earlier.

In its quarterly report on the headline delinquency measures used by each capital source, MBA found delinquencies at banks and thrifts (90 or more days delinquent or in non-accrual) declined 0.05 percentage points from the first quarter of 2021 to 0.75% with life company portfolios (60 or more days delinquent) down by the same figure to 0.05%.

Fannie Mae saw its delinquencies (60 or more days delinquent): decrease 0.13 percentage points from the first quarter to 0.53%; Freddie Mac (60 or more days delinquent), down 0.02 percentage points to 0.15%; and CMBS (30 or more days delinquent or in REO) at 5.68%, a decrease of 0.58 percentage points from the first quarter.