Commercial mortgage delinquencies rise again in 2Q

Commercial mortgage delinquencies rose for the third straight quarter, but property types where the largest share of distressed loans come from continue to change, said the Mortgage Bankers Association.

For example, while mortgage payment terms have improved, retail performance has deteriorated.

“Delinquency rates remain highest for real estate and retail lending, which have improved markedly but remain elevated due to pandemic-related impacts,” said Jamie Woodwell, head of commercial real estate research at MBA, in a press release. “As expected, delinquencies among mortgages backed by office loans drove the overall increase this quarter – with the office delinquency rate increasing by 130 basis points.

Across all property types, 2.3% of commercial and multi-family mortgages in progress were at least 30 days past due, vs. 2.2% in the first quarter, revealed the survey of the performance of loans in the field of commercial real estate financing. The MBA had no data for the second quarter of 2022.

Loans 91 days past due or more, or real estate owned, fell 1.7%, unchanged quarter over quarter.

At the same time, loans between 60 and 90 days past due remained unchanged from the first quarter at 0.2%, while between 30 and 60 days they fell from 0.3% to 0.4% .

Meanwhile, multi-family mortgages continued to perform well at 0.7% of outstanding balances, also unchanged from the first quarter. But the attendees are always concerned about the short term future for this sector.

When looking at the top sources of capital for financing multifamily properties, loans from government-sponsored companies had a default rate of 0.3%, unchanged quarter over quarter.

Delinquencies from the Federal Housing Administration (which also backs loans to healthcare facilities) in the second quarter were 0.8%, unchanged from the first quarter.

Home loan performance continued to improve as the distance from pandemic shutdowns lengthened, reaching a delinquency rate of 5.3% in the second quarter, compared to 5.6% three months prior . But commercial property defaults fell from 4.6% to 4.9%.

And office buildings, which are the hardest hit as many companies still use full or hybrid work-from-home policies, rose quarter-over-quarter to 4%, from 2.7% in the first quarter. .

In fact, Wells Fargo in its second quarter results announced it was setting aside more reserves to cover potential problems in its office loan portfolio.

“Recent interest rate volatility, uncertainty around real estate values ​​and questions about some real estate fundamentals have led to a freeze in parts of the mortgage sales and transaction markets,” Woodwell said. “As loans come due, owners, lenders and others will work to identify the best path forward for each asset, which could help break this deadlock.”

Respondents to that survey provided data on $2.7 trillion in loans in June, or 59% of the total $4.6 trillion in commercial and multifamily mortgage debt outstanding, the MBA said.