Delinquencies in commercial/multifamily space stay low

Strong fundamentals and low interest rates kept delinquency rate low in Q4 2019

Delinquencies in commercial/multifamily space stay low

Commercial and multifamily mortgage delinquencies remained at extremely low levels to round out the end of 2019.

The Mortgage Bankers Association released their latest report showing delinquency rates at the end of last year pretty much in the same place they were at the start of 2019.

"The key drivers - solid property fundamentals, strong property values and low interest rates - continue to support the market. It is too early to tell if and how concerns tied to the coronavirus and the related global slowdown will affect commercial real estate loan performance, but the corresponding drop in financing costs are providing additional near-term support," said Jamie Woodwell, vice president of commercial real estate research at MBA. Moving forward, it's hard to see delinquency rates going any lower, he added.

The Federal Reserve recently announced their decision to cut its benchmark interest rate by a half percentage point amid fears of the coronavirus, however, it’s still too early to tell what the impact of this decision on delinquency rates and loan performance will be.

“It’s brought a lot of uncertainty and you can see that in the financial markets and treasury rates dropping to historical lows,” said Woodwell.

Previous to the announcement, expectations would have been that there would be some natural upward pressure on delinquency rates, but nothing very significant considering market conditions.

The report looked 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. These groups hold more than 80% of commercial/multifamily mortgage debt outstanding, collectively.

According to the report, delinquency rates for each group at the end of the fourth quarter of 2019, based on the unpaid principal balance (UPB) of loans, were as follows:

  • Banks and thrifts (90 or more days delinquent or in non-accrual): 0.42 percent, a decrease of 0.03 percentage points from the third quarter of 2019;
  • Life company portfolios (60 or more days delinquent): 0.04 percent, an increase of 0.01 from the third quarter;
  • Fannie Mae (60 or more days delinquent): 0.04 percent, a decrease of 0.02 percentage points from the third quarter;
  • Freddie Mac (60 or more days delinquent): 0.08 percent, an increase of 0.04 from the third quarter; and
  • CMBS (30 or more days delinquent or in REO): 2.07 percent, a decrease of 0.22 percentage points from the third quarter.

Because each individual investor group tracking the performance of their loans differently, the report does not compare performance between groups. The FDIC delinquency rates for bank and thrift held mortgages in the report do not include loans backed by owner-occupied commercial properties.