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By Matthew Quinn
The delinquency rate for loans held in commercial mortgaged-backed securities hit a record in the third quarter, as the commercial property market continues to look like the next area to whack bank balance sheets.
Between the second and third quarters, the 30+ day delinquency rate on loans held in commercial mortgage-backed securities rose 0.17 percentage points to 4.06 percent, according to a report released by the Mortgage Bankers Association. That's up from 1.17 percent in the third quarter of 2008.
"Commercial and multifamily mortgages continued to feel stress in the face of the weakened economy," said Jamie Woodwell, MBA's Vice President of Commercial Real Estate Research.
Woodwell pointed out that loans backed by commercial properties are performing better than construction and development loans, which MBA's numbers don't include. But separate research from investment bank KBW showed that failed banks have a far higher concentration of such loans than other banks. Among the banks that have failed since 2007, 27.6 percent of their loans have been for construction purposes, compared to an industry average of 9.8 percent, according to a KBW report released Monday.
The loan books of banks that have failed are no different from the industry average when it comes to their concentration of commercial real estate loans. At least for now.
In an October speech, Federal Deposit Insurance Corp. Chairman Sheila Bair said, "The most prominent area of risk for rising credit losses at FDIC-insured institutions during the next several quarters is in [commercial real estate] lending."
She pointed out that, as of June, CRE loans backed by nonfarm, nonresidential properties totaled almost $1.1 trillion, or 14.2 percent of total loans and leases.
"The deep recession, in combination with ongoing credit market disruptions for market-based CRE financing, has made this a particularly challenging environment for commercial real estate," she told the Senate's Subcommittee on Financial Institutions. "Large volumes of CRE loans are scheduled to roll over in coming quarters, and falling property prices will make it more difficult for some borrowers to renew their financing."
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