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OAKLAND, CA-The delinquency rate on construction loans rose sharply in the second quarter, jumping to 9.0% from 7.2% in the first quarter, according to a preliminary national estimate by locally based Foresight Analytics. The non-accrual rate–construction loans for which banks have stopped accruing interest because they don’t expect the debtor to get back on track–had a similar trajectory, rising to 5.7% in Q2 from 4.3% in Q1. The 5.7% figure is nearly five times the rate from 12 months ago.

In advance of final numbers, due out in late August, Foresight Analytics uses earnings reports and call report filings from several banks to come up with its data, which has been quite accurate. Foresight partner Matthew Anderson tells GlobeSt.com that while single family and condo construction loans are the main source of the problems–delinquency rates for for-sale residential construction loans are in excess of 10% compared to the low single digits for commercial–delinquency rates on the commercial side are on the rise as well.

“While the stock market seems to think the worst is over our data shows that, as of the second quarter, things were still deteriorating on all fronts,” Anderson says. “The results are not exactly alarming, but certainly there is cause for a little concern that commercial mortgage delinquency figures are continuing to climb.”

The total delinquency rate for commercial mortgages rose to 2.1% in Q2 from 1.8% in Q1 and 1.6% in Q4 2007. The increase is mainly due to nonaccrual loans, which increased to 1.1% in Q2 from 0.9% in Q1.

“The commercial mortgage sector remains much healthier than for-sale residential [but] concerns about valuations and tighter underwriting standards are constraining availability of debt financing,” Anderson says. “CMBS deal flow remains very low, limiting borrowers’ options. A sharper or prolonged economic downturn could pose further problems for the commercial mortgage sector.”

The total delinquency rate for first lien single family mortgages also rose at an accelerated pace in the second quarter, jumping to 5.4% in Q2 from 4.7% in Q1. In Q4 2007, the rate was 4.2%. The nonaccrual rate also rose sharply, to 2.7% in Q2 from 1.9% in Q1. Less than two years ago, the rate was as low as 0.5%, and the rates likely will rise further, Anderson says, as “falling home prices and weak sales volume weigh on the housing sector.”

As for the accuracy of its estimates, Foresight’s preliminary construction loan delinquency rate for Q1 was 7.1%, one tenth of one percent off from the actual numbers reported one month later. Its early Q1 estimate for commercial mortgage delinquency and non-accrual rates matched the actual numbers.

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