Multifamily loans backing commercial mortgage-backed securities are performing better than expected, but remain weighed down by the influence of rent-stabilized properties in New York, a Fitch Ratings report said Friday.

"Multifamily loans, along with hotels, have rebounded by the most strides over the past two years," said Huxley Somerville, managing director of Fitch Ratings.

Somerville claims in a research note that multifamily loans in New York are driving total late-payment rates higher in the segment.

In 2006 and 2007, issuers underwrote fixed-rate multifamily loans with stabilization plans, whereby rent stabilized units were converted to market, according to Fitch. These loans, Stuyvesant Town/Peter Cooper Village ($2.8 billion), The Belnord ($375 million), Riverton ($225 million), and Savoy Park ($210 million) for a total of $3.6 billion did not see their stabilization plans pan out.

"In addition several issuers originated small balance commercial loans, many of which were not underwritten with typical conduit guidelines instead using residential origination criteria," Fitch said in its latest CMBS report. "They have grossly underperformed compared to the CMBS conduit product."

With those properties included, the late payment rate for the segment sits at 14.4%. However, that rate would drop to 9.3% without the influence of the New York properties, Somerville's report claims.

The research note further noted that "small balance loans also contributed notably to the high rate of multifamily delinquencies as they too grossly underperformed market expectations. Remove these loans from the mix and, coupled with stabilizing trends, Fitch expects to see multifamily late-pays gradually decline in the coming months."