Late commercial mortgages at lowest level since pandemic began

Commercial mortgage loan defaults continue to improve. Aside from a small spike in apartment buildings, they fell to their lowest level since the COVID-19 pandemic began in May, the Mortgage Bankers Association reported.

95.2% of commercial and multi-family mortgage loans were due in May, up from 95.1% in April, according to the MBA’s monthly credit performance survey for commercial real estate finance.

“However, there are still pockets of increased stress caused by loans in the later stages of late payments and foreclosures, or REO,” said Jamie Woodwell, vice president of Commercial Real Estate Research. in a press release. “The quarterly measurements of default rates between the fourth quarter of last year and the first quarter of this year show a decrease in distress for almost every source of capital.”

In May, the number of heavily overdue commercial and multi-family mortgages – held for more than 90 days with their payments or owned by real estate – fell from 3.2% to 3.1%.

Almost 0.2% were between 60 and 90 days late, compared to 0.3% in April. But there was an increase in the 30 to 60 day delay category from 0.4% to 0.5%.

Service providers said 1% of their loans were less than 30 days late in paying, up from 1.1% in April.

The loans backed by lodging and retail properties remain under significant stress. Fewer accommodation loans were not due in May, but still a relatively high proportion of 20%; in April, 20.2% of these loans were overdue.

A higher proportion of retail lending was out of date in May, 9.5% versus 9.3% in April.

Both categories are still faring significantly better than in June last year, when the proportion of overdue loans was 27.3% in the accommodation sector and 9.3% in the retail sector.

Only 1.8% of apartment buildings missed their payment in May, up from 1.7% in April. This is the same general range for this type of property since the MBA started this survey last year.

Commercial mortgage-backed securities default rates rose from 8.5% in April to 8.2% in May.

However, the late payment rate for mortgages insured by the Federal Housing Administration increased 0.3 percentage points to 2.4% and for government-sponsored corporate mortgages it increased 0.1 percentage points to 1.2%. Loans in life insurance portfolios had a default rate of 2% in May, unchanged from April.

The MBA also released its quarterly report on defaults. Unlike the monthly data that comes from a servicer survey and reports on loans that haven’t made any payment that month, this report comes from the various financiers and reflects each source’s own metrics.

For CMBS, which classifies loans 30 or more days late or overdue in REO, the rate fell to 6.3% in the first quarter, compared to 7.5% in the fourth quarter. In the first quarter of last year, before the pandemic broke out, this type of investor had a default rate of 1.79%, the lowest in over 10 years.

For bank and thrift portfolio loans that are 90 days or more late in measurement, the 0.8% default rate in the first quarter was 3 basis points lower than in the fourth quarter, but increased 29 basis points year-on-year.

Fannie Mae, which includes forbearance loans that are not in their late standard of 60 days or longer, saw the default rate decrease 32 basis points quarter over quarter to 0.66%. A year earlier, the rate was just under 5 bps.

Freddie Mac does not take out any deferred loans in his report, had a default rate of 17 basis points in the first quarter, 1 basis point more than in the fourth quarter and 9 basis points more than in the first quarter of 2020.

The default rate of life insurers over 60 days was 0.1%, 6 basis points lower than in the fourth quarter, but 6 basis points higher than a year ago.