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Commercial mortgages: a time bomb set to go off? Not so, says the Mortgage Bankers Association. MBA released data earlier this month showing that not only did delinquency rates decline for commercial and multifamily mortgages during the fourth quarter of 2011, but these mortgages also outperformed other loan types throughout the downturn.

“Over the course of 2011, and throughout the credit crunch and recession, commercial and multifamily mortgages have had the lowest charge-off rates of any type of loan held by commercial banks and thrifts,” according to an MBA Research DataNote. “In 2011, banks and thrifts charged off 0.84% of their balance of commercial mortgages and 0.74% of their multifamily mortgages, compared to charge-off rates of 1.22% and 1.24% respectively in 2010.”

That isn’t to say that commercial real estate debt got through the Great Recession completely unscathed. Banks charged off 3.33% of their construction loans last year, for example, according to MBA. Otherwise, though, the performance of commercial and multifamily mortgages compared favorably to that of commercial and industrial loans, for which banks charged off 0.89% of the outstanding balances in ‘11; single-family residential loans, 1.43%; 1.25% of other (non-credit card) loans to individuals; and 5.45% of their credit card loans.

“Counter to what many have predicted, commercial mortgages have proved to be neither ‘the next shoe to drop’ nor a ‘ticking time bomb’ for the banking sector or the economy as a whole,” Jamie Woodwell, MBA’s VP of commercial real estate research, says in a release. “The data show that, to the contrary, commercial and multifamily mortgages have generally performed well for most investor groups and have been the best performing loans held by banks and thrifts through this recession.”

Bearing out preliminary projections that Trepp made in January, prior to the release of final figures from the FDIC, MBA reported that Q4 ’11 delinquency rates declined from the prior quarter for a variety of lenders and loan classes, including CMBS. Late-pays of 30 days or more for CMBS fell 0.36 percentage points to 8.56%, while the 90-day-plus delinquency rate for loans held by FDIC-insured banks and thrifts fell 0.20% to 3.55%. For life insurance companies, the 60-day-plus delinquency rate fell 0.02 percentage points to 0.17%. For multifamily loans held or insured by Fannie Mae, the 60-day-plus delinquency rate rose 0.02 percentage points during Q4 to 0.59%, at Freddie Mac, the quarter saw a 0.11 percentage point decrease to 0.22%.

MBA notes that different sources measure delinquency rates differently, hence the disparity in time frames among the different loan classes. Fannie, Freddie and the American Council of Life Insurers all use a 60-day yardstick and do not include REO. The FDIC measures delinquencies of 90 days or longer, and also does not include REO. CMBS data provided to MBA by Wells Fargo and Intex Solutions cover private-label loans delinquent for at least 30 days, and are the only data among the loan classes to include REO in either the numerator or the denominator.

Analyzing preliminary data from the FDIC, Trepp in January projected commercial mortgage delinquencies of 4.5% for Q4 ’11 when both 30-day-plus past dues and nonaccruals are factored in, and 3.1% for nonaccruals only.  The delinquencies were the lowest since Q3 2009; they rose as high as 5.6% in Q1 2010. At a preliminary 15.8% for Q4 ’11, construction loan delinquencies are the highest among the four loan types measured by Trepp, although they’re down considerably from the 19.6% seen at the start of ’10.

As they did with construction loans, larger banks appear to have sold off some portfolios of nonperforming commercial mortgages during Q4 of last year, according to Trepp’s January report. “Prospects for continued disposals during 2012 appear good, including some securitization deals that are in the works.” However, the report continued, “loan growth dynamics appear weak, with many banks continuing to trim their commercial mortgage exposure. Furthermore, maturing debt from the boom years will impact the market this year, so there will likely be some turbulence ahead” during the current year.   

In line with this prediction, MBA also reported separately that the level of commercial and multifamily mortgage debt outstanding was essentially flat in Q4, falling $3 billion from Q3 to $2.359 trillion. Year over year, the decline was 0.6% or $14 billion. Of that total, outstanding multifamily mortgage debt rose to $808 billion, an increase of $4 billion or 0.5 percent from Q3.

“Fannie Mae, Freddie Mac, FHA, life insurance companies and banks and thrifts all increased their holdings of commercial and multifamily mortgages” during Q4, Woodwell says in a release. Yet he adds, “continued declines in CMBS balances—resulting from few new originations during the quarter and a continued run-off and run-down of outstanding CMBS loans—more than erased these other increases.”