Commercial/multi-family mortgage delinquencies end 2007 at or near record lows

The Mortgage Bankers Association released its inaugural analysis of Commercial/Multifamily Mortgage Delinquency Rates for Major Investor Groups, which shows delinquency rates ended 2007 at or near record lows for most major investor groups. Fourth quarter delinquency rates for four of the five largest investor groups—commercial mortgage-backed securities (CMBS), life companies, Fannie Mae and Freddie Mac—remained at or near historically low levels. For the fifth group, Federal Deposit Insurance Corporation (FDIC)-insured commercial banks and thrifts, delinquency rates were lower at 2007's year-end than during five of the previous 11 years and 10 of the previous 16 years.

"This is an important new analysis that helps cut through much of the recent 'noise' on commercial real estate finance," said Steve K. Graves, managing director and chief operating officer of Principal Real Estate Investors and chair of MBA's commercial board of governors. "Despite a great deal of attention being paid to economic uncertainty, it is reassuring to know that the performance of commercial and multi-family mortgage loans and bonds has remained so fundamentally sound."

The new MBA analysis looks at commercial/multi-family delinquency rates since 1996 and compares year-end rates for the five largest investor groups: commercial banks and thrifts, CMBS, life insurance companies, Fannie Mae, and Freddie Mac. Together, these groups hold more than 80 percent of commercial/multi-family mortgage debt outstanding.

"The analysis incorporates the same measures used by each investor group to track the performance of their loans," said Jamie Woodwell, senior director of commercial/multi-family research at MBA. "While the numbers aren't comparable across different investor groups, within each group they show a common theme—for nearly every investor group, commercial/multi-family loans are currently performing at some of the strongest levels on record."

CMBS delinquency rates at year-end 2007, for example, were lower than those at year-end of nine of the previous 10 years. Life companies finished 2007 with a delinquency rate lower than at year-end of all 11 of the previous 11 years. Fannie Mae finished with a rate lower than or equal to 10 of the previous 11 years. Freddie Mac finished with a rate lower than 10 of the previous 11 years. In addition, FDIC-insured banks and thrifts finished the year with a delinquency rate lower than five of the previous 11 years.

For the two series with longer histories, commercial banks/thrifts and life insurance companies, delinquency rates from 1996 to 2007 are considerably lower than during the preceding years. Using these longer series as a gauge, life companies' 2007 year-end delinquency rates were their lowest on record, and delinquency rates at commercial banks ended 2007 lower than 10 of the previous 16 years.

Each investor group tracks delinquencies in its own way, meaning delinquency rates are not comparable from one group to another. Based on the unpaid principal balance (UPB) of loans, delinquency rates for each group at the end of the fourth quarter were as follows:

•CMBS: 0.40 percent were 30 or more days delinquent or real estate owned;
•Life company portfolios: 0.01 percent were 60 or more days delinquent;
•Fannie Mae: 0.08 percent were 60 or more days delinquent;
•Freddie Mac: 0.02 percent were 60 or more days delinquent; and
•Banks and thrifts: 0.80 percent were 90 or more days delinquent or in non-accrual.

To put these numbers in context, of 34,937 commercial/multi-family loans in life company portfolios, with a total UPB of $245 billion, only nine loans with an aggregate UPB of less than $19 million were 60 or more days delinquent at the end of the quarter. Of $1.2 trillion in commercial/multi-family loans at FDIC-insured banks and thrifts, only $9 billion was 90 or more days delinquent.

For more information, visit www.mortgagebankers.org.