October  2008 VOL. 2

Investment Notes

Delinquency rates ticked up slightly in the second quarter for most commercial/multifamily mortgage investor groups, but remained at the lower end of their historical ranges, according to a new report from the Mortgage Bankers Association (MBA).

Commercial/multifamily mortgages are not seeing the same kinds of deterioration in performance that single-family mortgages, construction and some other types of loans have seen, according to Jamie Woodwell, MBA's vice president of commercial/multifamily research.  "While delinquency rates for most commercial/multifamily investor groups are slightly higher over the last two quarters, it is important to remember that we are coming off record lows for the past year," she points out. "The take away is that commercial/multifamily mortgage performance generally remains strong and well within expectations."

Between the first and second quarters, the 30+ day delinquency rate on loans held in commercial mortgage-backed securities (CMBS) rose 0.05 percentage points to 0.53 percent. The 60+ day delinquency rate on loans held in life company portfolios rose 0.02 percentage points to 0.03 percent. The 60+ day delinquency rate on multifamily loans held or insured by Fannie Mae rose 0.02 percentage points to 0.11 percent. The 60+ day delinquency rate on multifamily loans held or insured by Freddie Mac fell 0.01 percentage points to 0.03 percent. The 90+day delinquency rate on loans held by FDIC-insured banks and thrifts rose 0.17 percentage points to 1.18 percent.

The MBA analysis looks at commercial/multifamily delinquency rates for five of the largest investor-groups: commercial banks and thrifts, commercial mortgage-backed securities (CMBS), life insurance companies, Fannie Mae and Freddie Mac. Together these groups hold more than 80 percent of commercial/multifamily mortgage debt outstanding.

The analysis incorporates the same measures used by each individual investor group to track the performance of their loans. Because each investor group tracks delinquencies in its own way, delinquency rates are not comparable from one group to another.

Based on the unpaid principal balance of loans (UPB), delinquency rates for each group at the end of the second quarter were as follows:
 
• CMBS:  0.53 percent (30+ days delinquent or in REO)
• Life company portfolios:  0.03 percent (60+days delinquent)
• Fannie Mae:  0.11 percent (60 or more days delinquent)
• Freddie Mac:  0.03 percent (60 or more days delinquent)
• Banks and thrifts:  1.18 percent (90 or more days delinquent or in non-accrual)

To put these numbers in context, of 35,276 commercial/multifamily loans in life company portfolios, with a total unpaid principal balance of $252 billion, only 23 loans with an aggregate UPB of less than $69 million were 60+ days delinquent at the end of the quarter. Of $1.2 trillion of commercial/multifamily mortgages at FDIC-insured banks and thrifts, only $15 billion was 90+ days delinquent.