Property Value Instability Leads to Rising Delinquency Rates in Commercial and Multifamily Mortgages
The Mortgage Bankers Association (MBA) has released its newest Commercial/Multifamily Delinquency Report, revealing a surge in delinquencies for the second quarter of 2023. This eye-opening data indicates increased financial stress on commercial and multifamily properties, with loan delinquency rates rising across most capital sources.
Jamie Woodwell, who leads MBA’s Commercial Real Estate Research, has shed some light on the factors contributing to this trend. “Although the rise in delinquency rates was anticipated, it’s worth noting that they are still relatively low when viewed in the context of historical data,” said Woodwell. “Nonetheless, the turbulent interest rate environment, along with the growing uncertainty around property valuations and sector-specific market pressures, are collectively placing increased stress on certain loans and properties.”
MBA’s comprehensive study examined delinquency rates across five major investor groups that collectively hold over 80% of the outstanding debt in the commercial/multifamily mortgage sector. These include commercial banks and thrifts, commercial mortgage-backed securities (CMBS), life insurance companies, and government-sponsored enterprises like Fannie Mae and Freddie Mac.
One intriguing aspect of MBA’s research is the unique methods each investor group employs to track loan performance, making a side-by-side comparison challenging. For instance, Fannie Mae considers loans under payment forbearance as delinquent, while Freddie Mac does not include such loans if the borrower is adhering to the forbearance agreement.
Given these nuances, the report serves as a multi-dimensional lens into the health of the commercial and multifamily mortgage landscape. As financial institutions grapple with fluctuating interest rates and property value uncertainties, this data offers invaluable insights that could influence both lending policies and investment strategies going forward.
