There’s room for some cautious optimism in the commercial mortgage-backed securities market, according to a new CRED iQ analysis of April data. For the third month in a row, the overall distress rate declined, indicating signs of stabilization after some time of “heightened volatility.”
However, there were modest increases in delinquency and special servicing rates as well as a tilt toward non-performing loans that were past maturity.
As a reminder, CRED iQ considers distress a combination of loans that are at least 30 days delinquent and those that are in special servicing. The analysis focuses on conduit and single-borrower large loan structures and separately tracks Freddie Mac, Fannie Mae, Ginnie Mae, and CRE CLO metrics. The distress rate fell from March to April by 30 basis points to 10.3%.
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That was the good news. The, if not bad, then disappointing information was the increase of the delinquency rate from 7.9% to 8.0%. The special servicing rate also grew by 20 basis points to 9.9%.
The breakout of the loan statuses in April starts with 15.7% current, a total of $8.3 billion. That was down from $10.3 billion in March.
Another 25.7%, or $13.6 billion, of loans were delinquent. They break out as follows: 1.6% late but in the grace period, 4.7% late but less than 30 days delinquent, 4.8% 30 days delinquent, 1.9% 60 days delinquent, and 12.7% that were at least 90 days delinquent.
Then there were matured loans, a majority at $31.0 billion or 58.6% of the total that had massed their maturity dates. Of the 58.6%, 16.6% were still performing. The remaining 42.0% of matured loans were non-performing. The latter was the single largest group and was up from 36.3% in March.
CRED iQ said that the increase in the last category, which is probably the most troubling, shows the difficulty in refinancing or resolving loans that were originally set a few years back, with much lower rates and higher leverage ratios. If the trend continues, it could have a negative impact on CMBS portfolio performance.
The better distress rate might be due to improved borrower response to loan demand or more successful loan resolutions. The increase in heavy delinquency rates, more non-performing past-maturity loans, and greater special servicing rates are signs of potential upcoming problems. The last part, the non-performing past-maturity loans show tighter financing conditions under higher interest rates, making it harder for borrowers to refinance, CRED iQ wrote.
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