Commercial mortgage delinquency rates are spiking, extending pressures across all major capital sources, according to the Mortgage Bankers Association’s Commercial Delinquency Report.
The sharpest increase came from commercial mortgage-backed securities, where delinquencies surged 45 basis points to 6.36% in the second quarter. Rising stress among multifamily and office loans accounted for much of the uptick, said Reggie Booker, associate vice president of commercial real estate research at the MBA. “Delinquency trends continue to reflect differences in property type, loan structure, geography, and borrower profile,” he noted in the report.
Other investor categories also saw modest increases in delinquency, though at significantly lower levels. Freddie Mac held the lowest rate at 0.47% in the second quarter, up one basis point from the first quarter. Life insurance company portfolios followed at 0.51%, also a one basis-point increase. Fannie Mae rose two basis points to 0.61%, while banks and thrifts ticked up by a basis point to 1.29%.
Comparisons between categories, however, are complicated by the differing definitions of delinquency each capital source applies. Banks and thrifts define delinquency or non-accrual as at least 90 days past due, while Fannie Mae, Freddie Mac and life insurers use a 60-day threshold. The CMBS sector has the most aggressive definition, counting loans as delinquent at just 30 days past due or if they are placed in real-estate-owned status. A loan delinquent for 88 days at a bank would not register, although that same obligation in a CMBS pool would have been categorized delinquent two months earlier.
Longer-term context highlights how far current delinquency rates have moved. Banks and thrifts are now on par with 2014 levels, while CMBS delinquency has climbed to match the rates last seen in 2013. For life insurers, whose portfolios are typically regarded as among the most conservatively underwritten, delinquency reached levels not recorded since the late 1990s. Fannie Mae numbers mirror rates last observed in 2021, while Freddie Mac’s delinquency is the highest since 2011, with a historical comparison stretching back to 1998.
Since 1995, delinquency rates have fluctuated widely depending on the capital source. CMBS loans have ranged from a low of 0.2% to a high of 9.6%. Life insurance companies’ delinquencies have spanned between 0% and 2.6%. Fannie Mae has run near zero and 1.1%, while Freddie Mac has ranged from 0% to 3.1%. Banks and thrifts, with broader portfolios, have seen delinquency levels between 0% and 4.4%, according to the Mortgage Bankers Association.
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