Genesis Capital: Declining Commercial Loan Delinquencies a Good Trend as Highlighted by the MBA Commercial/Multifamily Delinquency Report

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Commercial and multifamily mortgage loan delinquency rates continued to decline in the fourth quarter of 2012 as reported by the Mortgage Bankers Association’s (MBA) Commercial/Multifamily Delinquency Report. Delinquency rates have dropped throughout 2012 driven by a strong finance market and improved commercial real estate fundamentals.

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The continuing drop in delinquencies is providing strong upside to the continuing recovery in commercial real estate.

Commercial and multifamily mortgage loan delinquency rates continued to decline in the fourth quarter of 2012 as reported by the Mortgage Bankers Association’s (MBA) Commercial/Multifamily Delinquency Report. Delinquency rates have dropped throughout 2012 driven by a strong finance market and improved commercial real estate fundamentals.

“The continuing drop in delinquencies is providing upside to the continuing recovery in commercial real estate. As delinquencies drop, financing becomes easier to secure and with looser credit requirements it is easier for landlords to refinance. Increasing property values are also helping contribute to the drop in delinquencies as many loans that were once underwater are now in the black,” said Terry Robinson, president of Genesis Capital.

The report splits out delinquency rates by lender. Delinquency rates were lowest at life insurance company portfolios and greatest for loans held in commercial mortgage-backed securities (CMBS). For the fourth quarter of 2012, insurance company portfolios saw just a 0.08 percent 60+ day delinquency rate in commercial and multifamily mortgages. Freddie Mac and Fannie Mae also saw low 60+ day delinquencies rates for multifamily loans, with Freddie Mac reporting 0.19 percent delinquency rates and Fannie Mae reporting 0.24 percent delinquency rates. FDIC insured banks and thrifts saw a 2.62 percent delinquency rate, while loans held in CMBS were at an 8.73 percent delinquency rate.

The Mortgage Bankers Association does not include development and construction loans in their figures, even though many regulatory agencies include these loans as part of commercial real estate lending. MBA has chosen to leave development and construction loans out of their numbers because these loans are often taken out to back single family residential development projects.

Construction and development loans are not included in the numbers presented here, but are included in many regulatory definitions of ‘commercial real estate’ despite the fact that they are often backed by single-family residential development projects rather than by office buildings, apartment buildings, shopping centers or other income-producing properties. The FDIC delinquency rates for bank and thrift held mortgages reported here do include loans backed by owner-occupied commercial properties.

As commercial real estate values continue to escalate it is safe to assume that delinquencies will continue to fall. This is good news for the projected refinancing crisis that was expected when the Great Recession began as it now appears that no such crisis exists. It also points to looser lending standards moving forward, making it easier for developers to begin building once again.

About Genesis Capital
Genesis is a dynamic nationwide network of seasoned commercial real estate and financial professionals that believe in the potential of today’s market. Our members source assets directly from Banks, Servicers, Lenders and Private Clients. The members of Genesis have participated in commercial real estate transactions totaling nearly $7 billion. Genesis is an affiliate of Off Market Association.

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Kathy Heshelow
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