Priya Patel
Key points:
- Commercial mortgage delinquency rates rose in the third quarter, marking the third consecutive quarter of increases.
- All major sources of commercial real estate capital saw delinquency rate increases.
- The CMBS delinquency rate remains the highest among investor groups.
- Rising interest rates, changes in property market fundamentals, and uncertainty about property values were cited as drivers of the delinquency rate increases.
- Commercial real estate market activity remains muted, further complicating the situation.
According to a report from the Mortgage Bankers Association (MBA), commercial mortgage delinquency rates rose in the third quarter. This marks the third consecutive quarter of increases in delinquency rates for commercial real estate loans. The MBA performs a quarterly study to track delinquency rates for five major investor groups that fund commercial real estate loans: commercial banks and thrifts, commercial mortgage-backed securities (CMBS), life insurance companies, Fannie Mae, and Freddie Mac. Together, these five groups hold over 80% of outstanding commercial debt.
The MBA’s report showed that delinquency rates increased for each investor group at the end of the third quarter. Jamie Woodwell, head of commercial real estate research for the MBA, noted that the rise in delinquency rates was not unexpected. Woodwell attributed the increases to higher interest rates, changes in property market fundamentals, and uncertainty about property values. He also mentioned that commercial real estate market activity remains muted, which further complicates the situation.
The CMBS delinquency rate remains the highest among all investor groups, at 4.26%. This rate is defined by loans that are at least 30 days overdue, as well as real estate-owned (REO) properties. The delinquency rate for loans financed by banks and thrifts was 0.85%, Fannie Mae multifamily loans had a delinquency rate of 0.54%, and Freddie Mac loans had a delinquency rate of 0.24%. Life insurance companies had a delinquency rate of 0.32% for loans held in their portfolios.
The MBA does not track a total delinquency rate across all investor groups, as each group uses a different definition for delinquent loans. Woodwell emphasized that there are wide differences in mortgage performance based on property type, deal vintage, term, market, and other factors. These differences are likely to remain important in the coming year.
In conclusion, commercial mortgage delinquency rates rose in the third quarter for all major investor groups. Rising interest rates, changes in property market fundamentals, and uncertainty about property values were cited as factors contributing to these increases. The CMBS delinquency rate remains the highest among investor groups, and commercial real estate market activity continues to be subdued.
