Delinquency rates for commercial and multifamily mortgage loans hit new lows in the first quarter of 2016 as liquidity conditions for real estate investors remain extremely favorable.
“Strong fundamentals and strong property prices, as well as still low interest rates, continue to support the performance of commercial and multifamily mortgages,” said Jamie Woodwell, Mortgage Bankers Association’s (MBA) vice president of commercial real estate research. “A record decline in the volume of CMBS loans in foreclosure and REO brought a record decline in the delinquency rate for loans held in CMBS. At the same time, delinquency rates remain extremely low for commercial and multifamily mortgages held by life insurance companies, Freddie Mac, Fannie Mae and banks and thrifts.”
MBA analyzes the 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% of commercial/multifamily mortgage debt outstanding.
Based on MBA analysis, the unpaid principal balance (UPB) of loans, delinquency rates for other investor/originator groups at the end of the first quarter were less than 1% for all but CMBS originators.
- Banks and thrifts (90 or more days delinquent or in non-accrual): 0.73%, unchanged from the fourth quarter of 2015;
- Life company portfolios (60 or more days delinquent): 0.06%, an increase of 0.02 from the fourth quarter of 2015;
- Fannie Mae (60 or more days delinquent): 0.06%, a decrease of 0.01 percentage points from the fourth quarter of 2015; and
- Freddie Mac (60 or more days delinquent): 0.04%, an increase of 0.02 percentage points from fourth quarter of 2015;
Delinquency Rates Edging Back Up
When investment conditions have been so favorable for an extended period of time, investors and lenders invariably begin to wonder how long the current conditions will last.
Sure enough, CMBS delinquency rates have been ticking up in the first two months of this quarter, according to bond rating agencies and government entities, although given the record decline in the first quarter, some increase could be expected.
Overall CMBS loan delinquencies increased by six basis points (bps) in May to 2.98% from 2.92% a month earlier, according to Fitch Ratings. The dollar balance of late-pays increased by $173 million to $11.22 billion from $11.05 billion in April.
CMBS retail delinquencies increased to 4.56% from 4.42% in April; industrial increased to 3.41% from 3.34%; and mixed use jumped to 4.08% from 3.25%.
Those increases were offset somewhat by office, hotel and multifamily delinquencies for CMBS loans, which edged down slightly to 4.15%, 3.47% and 0.87% respectively.
Morningstar Credit reported that the delinquent unpaid principal balance for CMBS loans amounted to $22.48 billion, a 2.7% increase from the previous month but still down a significant 22.3% from the year-earlier period. Also, roughly $560.3 million in loan resolutions were reported, while $1.93 billion in newly delinquent loans were also reported.
Refi Market Softens
The refinance market for commercial mortgage securities loans is softening, according to Morningstar. The payoff rate for CMBS loans in May dropped to its lowest level in more than two years, down to 65.3% from a payoff rate of 81.7% in April.
The volume of CMBS loans due for repayment in May fell for the third time out of the past four months to $5.09 billion, down from $6.00 billion in April, and remains well below the 2016 high of $7.23 billion achieved in January.
Morningstar expects the maturity payoff rate will continue to slide, which in turn will likely affect the delinquency rate as many of the loans coming due this year were written in 2006 under optimistic cash flow projections that never materialized.
The rate for loans 30 days past due posted its largest increase in five months, rising to 2.79% from 1.96% in April, affected by the declining payoff rate for loans maturing in May.
Fannie Mae delinquencies also ticked up between April and June. Loans 60 or more days delinquent increased from a total of $14.4 million in unpaid principal balance to $23.8 million.
