Standard & Poor's analysts said defaults on loans backing commercial mortgage-backed securities are on pace to break the records set in 2009 but may not peak until after 2011. S&P studied commercial real estate loans in CMBS it rates through June 2010. Roughly 1,200 CMBS loans defaulted in the first half of 2010 and should pass the 2,138 that occurred throughout 2009. Between January 2009 and June 2010, more than 3,300 defaulted for a cumulative default rate of 9.4% of those loans studied. Of those loans being resolved, the severity rate for investors, or how much of the loan the bank or investor lost, jumped to 41.5% in 2009, up from 18.4% the year before. But so far through the first half of 2010, the loss severity rate has climbed to 43.5% and is nearing a record high. "During this period, a perfect storm was brewing for commercial real estate," said Larry Kay, a credit analyst at S&P. "Property fundamentals were weak, vacancy rates were approaching historical highs, and capital for financing remained elusive." CMBS unpaid balances reached $62.1 billion in September, according to Realpoint, more than double a year ago and 28 times higher than March 2007. Kay said default levels are going to get worse, which means more trouble for smaller and mid-sized banks. Those banks, according to another analytics firm Trepp, are at the most risk for defaulting commercial loans. Annual commercial loan defaults didn't peak until two years after the 2001 recession ended. If the recent recession follows suit, annual loan defaults would not peak until 2011. Or even further out. "Given the severity and length of the recent recession, coupled with historically high vacancy rates and unemployment, Standard & Poor's believes the lag may be even more pronounced this time around — and could push the annual loan default peak out even further," Kay said. Write to Jon Prior.