Delinquency rates for commercial mortgage backed securities havebeen on a bit of a roller coaster with shutdowns for thecoronavirus pandemic, but they're now headed down hill.

That's the view of Manus Clancy, Trepp's senior managingdirector and leader of the firm's applied data, research, andpricing departments.

"With remittance data for July nearing its completion point,preliminary numbers indicate that the CMBS delinquency reading isset for a sizable decline," Clancy said in a report Trepprecently published. If that holds, he said, thedecline will come a month after Trepp measured the rate within twobasis points of matching its all-time high.

Trepp predicted the direction last month, creating a new term:"terminal delinquency velocity."

"We noted at the time that delinquencies should start levelingoff under the assumption that borrowers that did not need relief orhad been meeting their debt obligations between April and June wereunlikely to flip to delinquency status for the first time in July,"Clancy said. "There were certainly plenty of first-time 30-daydelinquencies in July, but that number has slowed and a largenumber of loans were 'cured.' Those two forces combined to push thedelinquency rate—preliminarily—lower this month."

The rate is turning out to be less affected than expected bypostponement of payments as part of COVID-19 relief.

"It was intended that for loans that were granted a forbearance,the loan status would be reported as current by the servicer, butthe paid to date would not advance," Clancy said. "In reality, wesaw very few instances of loans that fall under this category. Thusfar, only $1.9 billion in loans saw the note flip to current withthe paid to date not advancing. This was dominated by a few largeloans that make up the majority of the $1.9 billion."

About $1.4 billion worth of loans were marked "current" as aresult of the loan being extended – sometimes by an "embeddedextension" and sometimes by a modification, Clancy reported. About$3.4 billion in loans went "current" with the paid to date notadvancing, he said. Of that $3.4 billion, only about 10% of thebalance has a special servicer or watchlist commentary thatindicates relief has been granted, Clancy said.

"For some of the remaining 90%, the relief was 'cancelled' andthe loan was brought current," Clancy said. "It is worth noting,however, that there is a huge 'purgatory' of loans that may havebeen forborne for which the data is still inconclusive. With thatin mind, it is possible that a wave of forbearance notices might beon the way."

Trepp plans to publish a complete July commercial mortgagebacked securities delinquency report soon, according to Clancy, whospearheads that research.