Commercial mortgage delinquencies rise in third quarter

All major sources of commercial real estate capital post delinquency rate increases

Commercial mortgage delinquency rates rose again in the third quarter, marking the third straight three-month period in which the share of overdue loans increased.

That’s according to the Mortgage Bankers Association (MBA), which reported that delinquencies for each investor group grew at the end of the third quarter. The group performs a quarterly study to track delinquency rates for five of the largest investor groups that fund commercial real estate loans. Together, the five groups — commercial banks and thrifts, commercial mortgage-backed securities (CMBS), life insurance companies, Fannie Mae and Freddie Mac — hold more than 80% of outstanding commercial debt.

“Not unexpectedly, delinquency rates on commercial mortgages increased for the third consecutive quarter,” said Jamie Woodwell, head of commercial real estate research for the MBA. “Every major capital source saw delinquency rates rise, driven by higher interest rates, changes in some property market fundamentals and uncertainty about property values. CRE market activity remains muted, further complicating the situation.”

The MBA doesn’t track a total delinquency rate across all investor groups, since each group uses a different definition for delinquent loans.

“CRE markets are large and heterogeneous. Data from MBA’s own survey released earlier in the quarter show wide differences in mortgage performance by property type,” Woodwell said. “Deal vintage, term, market and a host of other factors also play into which loans are facing pressure. These differences are likely to remain important in the year ahead.”

The CMBS delinquency rate — defined by loans at least 30 days overdue, as well as real estate-owned (REO) properties — remains the highest among all investor groups at 4.26%, up 0.44 percentage points from the second quarter. Loans financed by banks and thrifts had a delinquency share of 0.85% (90 or more days delinquent or in nonaccrual), up 0.18 percentage points on a quarterly basis.

Fannie Mae multifamily loans had a 0.54% delinquency rate, up 0.17 percentage points, while Freddie Mac loans had a 0.24% delinquency rate, up 0.03 points. Both government-sponsored enterprises consider loans 60 or more days past due as delinquent.

Loans held in life company portfolios (also considered delinquent at 60 days) had a past-due rate of 0.32%, up 0.18 percentage points quarter over quarter.


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