MBA reports commercial mortgage delinquency rates on the rise

commercial mortgage delinquency

The Mortgage Bankers Association (MBA) reported that delinquency rates are growing for commercial mortgages issued by 4 of the 5 classes of lenders they track.

Distress definitions differ

The MBA report is issued quarterly, with the latest version providing data through Q2 2023. It covers commercial property lending by Fannie Mae and Freddie Mac as individual entities and also by issuers of commercial mortgage-backed securities (CMBS), life insurance companies, and banks and thrifts as classes of lenders. The report does not separate out reporting on loans on multifamily properties from loans on other commercial property types.

MBA notes that the standards that these various classes of lenders use in assessing whether to report a loan as delinquent vary widely. Therefore, the absolute delinquency rates reported by the different lenders are not directly comparable. Because of this, the first chart, below, shows the relative delinquency rate history for the classes of lenders covered in the MBA report. The data displayed is normalized so that the average quarterly delinquency rate for each of the lender classes for the period between Q1 2018 and Q4 2019 is set to a value of 100.

commercial mortgage delinquency rates by lender type

The chart shows that the portion of loans that were classified as delinquent rose sharply in Q1 2020, particularly for loans backed by Fannie Mae. After falling in 2021, delinquency rates have been trending upward since 2022.

Delinquency rates started to move higher for commercial mortgages by life insurers and by Freddie Mac in Q3 2022. Rates started to move higher for CMBS and for loans by banks and thrifts in Q4 2022. Rates started to move higher for Fannie Mae loans in Q1 2023.

By the numbers, the reported delinquency rates in Q2 2023 were 3.82 percent for CBMS, up from 3.0 percent the prior quarter. Rates were 0.14 percent for life insurance companies, down from 0.21 percent in Q1. Life insurers was the only class of lender to see delinquency rates fall during Q2.

Rates were 0.37 percent for Fannie Mae, up from 0.35 percent the prior quarter. Rates were 0.21 percent for Freddie Mac, up from 0.13 percent. Commercial mortgages backed by Freddie Mac are the only category where the current delinquency rate is higher than the maximum levels reached during the COVID pandemic. In Q2, delinquency rates were 0.66 percent for banks and thrifts, up from 0.57 percent.

Note that the CMBS delinquency rate quoted above compares for a rate of 3.9 percent overall, and 1.59 percent for multifamily CMBS, reported by Trepp for June 2023.

The full MBA report includes definitions of how each class of lender defines a delinquent commercial mortgage. It can be found here.