Thursday, July 7, 2011

Loan Liquidations Send CMBS Delinquency Rate Plummeting

For the first time since the credit crisis began in 2008, the delinquency rate on loans held in commercial mortgage-backed securities (CMBS) has fallen for two consecutive months, according to the research firm Trepp LLC.

After a modest reduction in May, Trepp’s data show the delinquency rate fell sharply in June. Unfortunately, the company says, the rate reduction was driven primarily by a sharp spike in loans being resolved with losses, rather than delinquent loans actually curing.
Overall, the delinquency rate for U.S. commercial real estate loans in CMBS dropped 23 basis points last month to 9.37 percent, hitting its lowest point since February 2011. The 23 basis point drop comes on the heels of a five basis point dip in May.
Trepp explained that the decline is due to the fact that about $1.8 billion worth of loans were liquidated in June. That was the highest total since the company began measuring loss resolution numbers 18 months ago.
The elimination of these troubled loans from the pool reduced the delinquency rate by about 28 basis points, according to Trepp’s calculations. The remaining loans in the index actually saw delinquencies rise about five basis points leading to a net reduction of 23 basis points overall.
The percentage of loans seriously delinquent – meaning 60-plus days past due, in foreclosure, REO, or non-performing balloons – is now 8.75 percent, Trepp reports.
Among the major property types, the office sector delinquency rate was the only one to worsen. It rose 12 basis points last month, but at 7.35 percent, loans for office properties remain the best performing within CMBS.
The lodging/hotel delinquency rate plunged 150 basis points in June. It now stands at 13.87 percent.
Delinquencies within the industrial sector fell 28 basis points in June after months of sharp increases to hit 11.68 percent.
The multifamily delinquency rate fell 23 basis points to 16.48 percent. This remains the worst performing of the major property types.
The delinquency rate on CMBS loans backed by retail properties slipped 12 basis points last month, settling at 7.82 percent.

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