"That's a big jump," Foresight principal Matthew Anderson tellsGlobeSt.com. "We went out on a limb with that estimate; I wasinitially unsure about the projection but I feel more confident inthe number now, it seems to be holding up as we get informationfrom some of the biggest banks."

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The increase is being driven by a sharp rise innonaccruals--past due loans on which the lender has stoppedaccruing interest because full repayment is doubtful. Nonaccrualsrose to an estimated 7.7% in the third quarter, according toForesight, up from 5.7% in Q2 and 2.9% at year-end 2007.

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The main source of the problem is of course single-familyresidential construction lending, the delinquency rate for whichAnderson expects to come in at about 15% for the third quarter, upfrom 12.5% at mid-year. Commercial construction delinquency trendsaren't broken out of the overall figure but Anderson says manysmaller banks indicate rising delinquency rates for non commercialreal estate construction, and the delinquency rate for commercialmortgages has been rising steadily since mid-2007.

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Indeed, the pace appears to have accelerated in the thirdquarter. Foresight's estimate for commercial mortgage delinquenciesin the third quarter is 2.4%, up from 1.9% at mid-year, which wouldrepresent the largest quarterly increase since it hit a low of lessthan 1% in 2006.

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"It's still relatively low in the scheme of things," he says."Delinquency rates for commercial mortgages were about 7.5% at theend of 1991 and they are still quite low compared to theresidential sector; but the rate has been rising steadily and Iwouldn't say we've reached the peak yet. The recent seizure in thecredit markets really first hit in mid-September and would not bereflected in the third quarter figures."

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