CMBS Loan Defaults Rose to Record in Third Quarter

Discussion in 'Wall St. News' started by ASusilovic, Dec 7, 2009.

  1. Dec. 7 (Bloomberg) -- Delinquencies on commercial mortgage- backed securities rose to a record in the third quarter as unemployment rose and landlords struggled to retain tenants.

    The percentage of CMBS loans at least 30 days past due rose to 4.06 percent from 1.17 percent a year earlier, the Mortgage Bankers Association said today. That’s the most since the group began tracking the data in 1997. About 3.43 percent of bank- owned loans on offices, apartment buildings, shopping centers and other income-producing properties were at least 90 days past due, up from 1.38 percent a year earlier, the MBA said.

    The loan delinquency rate for bank-issued commercial loans is the highest since the second quarter of 1994, when it was 3.49 percent. The Federal Deposit Insurance Corp. has seized 130 banks since Jan. 1, the most since 1992, and faltering commercial property loans triggered the majority of bank failures, according to Chip MacDonald, a partner specializing in financial services at law firm Jones Day in Atlanta.

    “When there’s such a significant pullback in employment, that has an impact on commercial office space,” said Jamie Woodwell, vice President of commercial real estate research for the Washington-based mortgage bankers. “When there’s a pullback in consumer spending, that has an impact on retail.”

    The delinquency rate will not improve until the unemployment rate drops and consumer spending revives, Woodwell said in a phone interview. The MBA does not issue forecasts on when the turnaround might occur, Woodwell said.

    The U.S. unemployment rate fell 0.2 percent to 10 percent in November, the Labor Department reported Dec. 4. The most recent unemployment rate is the highest since 1983.

    High CMBS Delinquencies

    Investors in commercial mortgage-backed securities faced the highest delinquency among loan holders in the MBA report, which covered CMBS debt as well as property loans held by life insurance companies, and government-controlled mortgage financiers Fannie Mae and Freddie Mac.

    Delinquencies greater than 60 days on multifamily loans held or insured by Fannie Mae rose to 0.62 percent, up from 0.16 percent a year earlier. Delinquencies greater than 90 days on multifamily loans held or insured by Freddie Mac remained unchanged at 0.11 percent. Multifamily loans are backed by rental apartments.

    Late payments on commercial real estate loans held by life insurance companies increased to 0.23 percent, up from 0.06 percent, the mortgage bankers said.

    “Life insurers, Fannie and Freddie are pretty conservative in their underwriting, which keeps delinquencies low,” Woodwell said.

    Of a total $3.47 trillion in commercial and multifamily mortgage debt outstanding as of June 30, 50 percent was held by banks, 21 percent pooled in CMBS, 10 percent owned or guaranteed by government-backed enterprises, 9 percent held by life insurance companies and the rest by other government and private entities, the Mortgage Bankers Association reported.