In the second quarter of 2023, mortgage delinquency rates backed by commercial and multifamily properties experienced a slight uptick, according to the Mortgage Bankers Association’s (MBA) recent commercial real estate finance (CREF) Loan Performance Survey. Jamie Woodwell, MBA’s Head of Commercial Real Estate Research, highlighted that delinquency rates varied significantly by property type, with lodging and retail loans experiencing the highest delinquency rates due to pandemic-related impacts. Notably, office loans drove the overall increase in delinquency rates during this period.
Understanding the Mortgage Delinquency Findings:
MBA’s CREF Loan Performance Survey for June 2023 revealed the following key findings:
- Increase in Non-Current Loans: The balance of commercial and multifamily mortgages that were not current increased compared to the previous quarter (March 2023).
- Overall Delinquency Rates: At the end of the second quarter, 97.7% of outstanding loan balances were current or less than 30 days late, slightly down from 97.8% at the end of the first quarter. Delinquency rates for loans 90+ days late or in real estate-owned (REO) properties decreased to 1.7% from 1.8% in the previous quarter.
- Delinquency Rates by Property Type: The increase in delinquency rates was driven by loans backed by office properties, which saw the delinquency rate rise from 2.7% to 4.0%. On the other hand, delinquency rates for retail loans rose from 4.6% to 4.9%. However, the delinquency rates for multifamily, industrial, and lodging loans either remained unchanged or experienced a decline.
- Impact on Capital Sources: The delinquency rates for CMBS (Commercial Mortgage-Backed Securities) loans saw the most significant increase, rising from 3.3% to 4.1%. In contrast, delinquency rates for other capital sources, such as FHA (Federal Housing Administration) multifamily and health care loans, life company loans, and GSE (Government-Sponsored Enterprises) loans, remained relatively stable.
Implications for the Market:
The marginal increase in mortgage delinquency rates indicates a potential concern in the commercial and multifamily real estate market. While most loans remained current or slightly delinquent, the rise in delinquency rates for office loans may be attributed to uncertainties surrounding property values and interest rate volatility. The ongoing impact of the pandemic has continued to influence lodging and retail loan delinquencies, despite some improvements.
It is essential for property owners, lenders, and other stakeholders to closely monitor delinquency rates and take proactive measures to identify the best approach for each asset. As loans mature, evaluating property fundamentals and assessing market conditions will play a crucial role in navigating the real estate market effectively.
The second-quarter 2023 commercial and multifamily mortgage delinquency rates highlight the importance of closely monitoring market trends and economic factors. While the overall impact remains relatively moderate, the increase in office loan delinquencies and challenges faced by lodging and retail properties necessitate careful consideration. As the real estate industry continues to evolve, staying vigilant and proactive will be key in navigating the ever-changing landscape of mortgage delinquency rates and their implications for the broader market.