Delinquency rates on commercial and multifamily loans ended 2007 at or near record lows for most major investor groups, according to new research by the Mortgage Bankers Association (MBA).
Fourth quarter delinquency rates for commercial mortgage-backed securities (CMBS), life companies, and government-sponsored enterprises Fannie Mae and Freddie Mac clocked in at or near historic lows. And for FDIC-insured commercial banks and thrifts, delinquency rates were lower at year-end 2007 than during five of the previous 11 years and 10 of the past 16 years.
“This is an important new analysis that helps cut through much of the recent ‘noise’ on commercial real estate finance,” says Steve Graves, managing director & chief operating officer of Principal Real Estate Investors and chair of the Mortgage Bankers Association’s commercial board of governors.
MBA researchers combed through commercial/multifamily delinquency rates since 1996 and, and compares year-end rates for the five largest investor groups. Together these groups hold more than 80% of commercial/multifamily mortgage debt outstanding.
“The analysis incorporates the same measures used by each investor group to track the performance of their loans,” says Jamie Woodwell, senior director of commercial/multifamily research at the MBA. He points out that the numbers are not comparable across different investor groups, but they do show a common theme. “For nearly every investor group, commercial/multifamily loans are currently performing at some of the strongest levels on record.”
By the end of 2007, delinquency rates for CMBS were lower than for nine of the last 10 years. Life companies finished 2007 with the lowest delinquency rate in the past 11 years. Fannie Mae finished the year with a rate equal to or lower than 10 of the previous 11 years, and Freddie Mac finished with a rate lower than 10 of the past 11 years.
Based on the unpaid principal balance of loans, here is how delinquency rates for each investor group looked at the end of 2007:
- CMBS: 0.40% (30+ days delinquent or in REO);
- Life company portfolios: 0.01% (60+days delinquent);
- Fannie Mae: 0.08% (60 or more days delinquent);
- Freddie Mac: 0.02% (60 or more days delinquent);
- Banks and thrifts: 0.80% (90 or more days delinquent or in non-accrual).
Banking on these low numbers, lenders continued to pump debt capital into the industry through the end of last year. Overall commercial/multifamily mortgage debt outstanding grew by 2.6% in the fourth quarter, exceeding $3.3 trillion, according to recent flow of funds data from the Federal Reserve Board. That was an increase of $356 billion, or 12%, from the end of 2006. Multifamily mortgage debt alone increased by $28.2 billion during the fourth quarter, the largest increase on record.