Commercial mortgage-backed security delinquencies increased for the second
consecutive month in April as real estate-owned assets continued to climb, according to the latest index figures from Fitch Ratings.
For April, late CMBS payments rose to 8.53%, 10 basis points more than the prior month. Fitch anticipated this to happen as loans originated in 2007 are now starting to come due.
New delinquencies from loans originated in 2007 surpassed $1 billion each of the last three months, Fitch said.
However, loans that were considered “nonperforming matured” have been falling out of the index over the last two months, Fitch added.
“Over $4 billion in loans from 2007 have defaulted on either their balloon or regular payments since the start of this year,” said Mary MacNeill, managing director at Fitch. “While real estate owned assets typically experience higher loss severities, liquidating these assets will eventually help bring down the CMBS delinquency rate.”
Despite being down 97 basis points in April to 11.64%, the largest share of CMBS delinquencies were found in multifamily properties.
Fitch said it is also concerned about office properties, which saw a 37 basis point jump in CMBS delinquencies from March to April (7.99% to 8.36%). Retail loans were also higher in April from the previous month up to 7.39% from 7.23%.
Industrial loans showed notable improvements in April reaching 9.34% from 10.91% the month before. Hotel delinquencies were also down month-over-month by 15 basis points reaching 10.2% in April.
Out of all the CMBS delinquencies for this loan class, REO assets represented one-third of this figure, reaching $11.1 billion in scheduled loan balance in April. According to Fitch, the inventory of REO assets has increased the most in judicial states, up 111% from the beginning of 2011. During the same time period, nonjudicial states have seen its inventory grow by 64%.
For the current inventory of REO assets, it took about 323 days to foreclose on properties in judicial states, compared to only 179 for nonjudicial states.
“Our view is that the current REO inventory from judicial-only states represents older stock that is finally making its way through the system,” Fitch said in a press release.
Fitch data shows that current appraisals on REO assets have declined by 57% from issuance appraisals and that values are 35% below scheduled loan balances. Among the major property types, retail REO values fared the worst with average declines of 65% from issuance. Meanwhile, multifamily came out on top with values decreasing 46%. Office, industrial and lodging REO assets saw value drops in the 50% range.
Because there are now more commercial REO assets that comprise CMBS delinquencies, Fitch believes this will help bring the overall delinquency rate throughout the remainder of the year.
“We expect the rate to vary by about 25 basis points in both directions in 2012 and that the current inventory will put downward pressure on the delinquency rate as it is liquidated,” Fitch said.
