Commercial Mortgage Defaults May Reach 4.2% in 2009
The commercial mortgage default rate may top 4.2% by year-end and looks likely to peak in 2011, according to Real Estate Econometrics, which tracks data from banks and Federal Deposit Insurance Corp.-insured institutions. The large losses will be concentrated among regional and community banks, the firm said in an updated Q309 projection for commercial mortgage performance. The default rate rose to 2.88% in Q209 from 2.25% in Q109, consistent with projections made in June by Real Estate Econometrics. The outstanding balance of commercial mortgage loans from 30 to 89 days delinquent fell by $2bn from the first to second quarters, slipping to $12.8bn. The balance of loans in default status, 90 plus days delinquent or in non-accrual status jumped by $7.1bn -- or 29% -- to $31.3bn. The 8,195 institutions representing data in Real Estate Econometrics’ quarterly analysis experienced a 3.13% default rate on multifamily mortgages in Q209, from 2.45% in the previous quarter and from 1.2% in the year-ago quarter. Credit standards in commercial mortgage lending contracted in the midst of high delinquency levels, but recently show signs of easing as new loans perform better. "Following more than three years of tightening credit, the most current survey of senior loan officers suggests that the tightening cycle may be in the initial stages of moderating," the firm said in an August analysis. "Credit standards have stabilized at some institutions, albeit at much higher levels than prevailed in the period leading up to the real estate market’s peak. Consistent with previous cycles, the mortgages that are being made at the current trough in investment activity are unusually conservative and have a low probability of default." Write to Diana Golobay.