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OAKLAND, CA-The total delinquency rate for commercial mortgages expanded 60 basis points in the third quarter to 4.7%, according to an early estimate by locally based Foresight Analytics. While final figures for the third quarter are not due out until late November, the real estate market analysis and forecasting specialist uses earnings reports and call report filings from many smaller banks to produce its quarterly estimates.

The commercial mortgage delinquency rate has been rising at an accelerated rate ever since Lehman Brothers’ collapse in September 2008 and the ensuing severe credit crunch and economic downturn. While more than double the commercial mortgage delinquency rate from the same year-earlier period, the 4.7% delinquency rate is still well below the 8% rate in the third quarter of 2001. However, given a weak economy, severely constrained credit availability and a high volume of commercial mortgages coming due during the next several years, Foresight Analytics principal Matthew Anderson calls the increasing delinquency rate “worrisome.”

The delinquency rate for other commercial and industrial loans–loans to businesses typically unsecured and separate from commercial mortgage lending–rose 50 basis points in the third quarter to 4.2%. Anderson says the rate has been trending up by 50 basis points a quarter as the weak economy and reduced credit availability have put pressure on borrowers’ finances.

“The lack of credit is most apparent in the C&I loan category,” Anderson says. “We estimate a 6% decline in the volume of loans outstanding during Q3, following several quarters of contraction. The volume of loans outstanding has contracted by approximately 15% since peaking in Q3 2008.”

The delinquency rate in construction lending, including both residential and commercial, jumped 190 basis points in the third quarter to 18.2%. The last recession’s peak came in the first quarter of 2001 when construction loan delinquency hit 19.2%, according to AA.

“While for-sale residential construction loans [single family and condo] are by far the main source of problems, our estimates indicate that delinquency rates for other construction sectors, including apartments and commercial properties, are on the rise, too,” Anderson says. “Worsening fundamentals and reduced liquidity in the commercial real estate sector will likely contribute to further rises in the delinquency rate.”

Residential mortgage delinquencies rose 80 basis points in the third quarter to 11%. Aside from an approximately 200 basis point increase in the final three months of 2008, the delinquency rate has been rising by approximately 100 basis points per quarter since the first quarter of 2008. One year ago the rate was 6.4%.

“We have been expecting the rate of increase to slow, but clearly this has not yet occurred,” Anderson says.

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