The Real Estate Bloggers

Commercial Mortgage Securities Defaulting at 8.22 Percent Rate

Posted: 08 Sep 2010 10:39 AM PDT

Commercial-real-estate If you are in the commercial mortgage lending world there are some new and interesting numbers out there. The credit crunch has stifled much of the lending for new construction but that is not being a very big help to those who own commercial real estate.

The default rate for commercial and multi-family mortgages is rising, but mainly in those that have been packaged up as commercial mortgage backed securities. The rest seem to be doing okay.

The latest data published by the Mortgage Bankers Association shows that the delinquency rate on CMBS loans now stands at 8.22 percent in contrast to 4.26 percent for loans at commercial banks and just 0.29 percent for life insurance companies. More alarmingly, while the delinquency rate was stable at commercial banks and fell at life insurance companies during the second quarter of 2010, the rate for CMBS loans by 139 basis points. via Retail Traffic

These numbers do make sense. The loans given by the large insurance companies are designed to be the safest. They are typically large office towers or business parks and if they get into trouble the insurance companies can work with the borrowers as they have the capital to do so.

The commercial bank loans are defaulting about half as much as the CMBS loans, but these are the loans cherry picked by the banks to stay in their portfolio. They will keep the best loans while selling the rest.

That leaves the CMBS that were sold to investors and while being sold as top rated investments are now turning up as close to junk.

I wonder where we have heard this song before…

Hat tip to @BenjaminBack for finding this story.

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Commercial Mortgage Securities Defaulting at 8.22 Percent Rate