Commercial mortgage-backed securities lenders were the only type of investor to see a decline in arrears between Q2 and Q3, according to a report by the Mortgage Bankers Association.
While they hit a record high of 9.6% in the second quarter and fell 170 basis points to 7.9% in the third quarter, they are still down from 1.79% in the first quarter and 2.29% in the third quarter of 2019 elevated.
Investor default rates are tied to the types of properties they lend to. For example, CMBS crime rates are driven by the hotel and retail segments that have been hit hard by measures to contain the spread of COVID-19.
"Much of the market stress is being caused by primarily residential and retail property loans that defaulted in April and May and have now moved to later arrears," said Jamie Woodwell, vice president of commercial real estate research for the MBA, said in a press release. "There was a slight spike in newly criminal retail, lodging and office loans in November, but at levels well below what was seen at the start of the pandemic."
Simultaneously with the release of its quarterly report on commercial and multi-family home insolvency, the MBA provided data from its November commercial real estate loan loan performance survey.
After principal unpaid, 22.1% of hotel loans and 12.9% of retail loans were long-term payments in November, compared with 21% in October and 12% in October.
Across the entire commercial and multi-family spectrum, the group with a delay of less than 30 days rose from 0.7% in October to 1% in November and the 30 to 60 day category from 0.6 to 0.7%%. However, the crime rate after 60 to 90 days fell from 0.6% to 0.4%, while the crime rate after 90 days and in real estate was unchanged at 3.5%.
For its quarterly report, the MBA aggregates the default rates from various sources and uses the source definitions so that comparisons between investor types are only possible to measure trends. For example, the CMBS rate measures loans that are 30 days or more late and, unlike other types, also includes excluded loans and real estate ownership.
The 60-day default rate for mortgage investments by life insurers rose to 17 basis points in the third quarter, from 15 basis points in the second quarter and 4 basis points in the first quarter.
Fannie Mae's 60-day delinquency rate rose 12 basis points to 1.12% in the third quarter from the second quarter. in the first quarter it was 0.05%. For Freddie Mac, the rate increased from 0.1% in the second quarter to 0.13% in the third quarter and from 0.08% in the first quarter. However, Fannie Mae reports leniency loans as criminal, while Freddie Mac rules them out.
For banks and thrift, the 90-day default rate was 72 basis points in the third quarter, compared with 64 basis points in the second quarter and 51 basis points in the first quarter.
Controlling the spread of the pandemic will have the biggest impact on commercial and apartment building crime rates over the next year, Woodwell said.
"Looking ahead to 2021, widespread immunization should help the economy and commercial real estate – especially the hardest-hit retail, leisure and hospitality sectors – recover faster into midsummer," said Woodwell. "Until then, a lot will depend on how long the current surge lasts and how much it stifles economic activity."