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  • Writer's pictureRealFacts Editorial Team

Trepp: Delinquencies increase again as servicing rate rises


Buildings

The multifamily commercial mortgage-backed securities (CMBS) market experienced a notable increase in delinquencies during May 2024, according to a recent report by data provider Trepp. The delinquency rate surged by 37 basis points, reaching 1.70%, with newly delinquent multifamily loans totaling $245 million. Despite this uptick, Trepp highlighted that a significant number of loans were successfully resolved over the month.


Simultaneously, the servicing rate for multifamily CMBS loans climbed 33 basis points to 5.43% in May. This marks a dramatic rise from March 2024, when the servicing rate was 2.40%. The rate exceeded 5% for the first time in seven years in April and showed a significant increase compared to 2.97% in May 2023.


Despite these challenges in the multifamily sector, the broader commercial real estate (CRE) market showed some positive signs. The overall delinquency rate for CRE decreased by 10 basis points to 4.97%, largely due to the resolution of over $2 billion in office loans. However, the overall servicing rate for CRE loans rose by 10 basis points, reaching its highest level since June 2021 at 8.21%.


MBA’s latest Commercial Delinquency Report reveals varying impacts across major investor groups. Banks and thrifts saw a 0.09 percentage point increase in delinquency rates, reaching 1.03%. Life insurance companies experienced a 0.16 percentage point rise, with a delinquency rate of 0.52%. Freddie Mac and CMBS also saw increases, albeit smaller, with rates rising to 0.34% and 4.35%, respectively. Notably, Fannie Mae reported a slight decrease in delinquencies, dropping 0.02 percentage points to 0.44%.


It's important to note the differences in how each group tracks delinquencies, which can complicate direct comparisons. Life insurance companies, Fannie Mae, and Freddie Mac categorize loans as delinquent if they are 60 or more days overdue. In contrast, banks and thrifts classify loans as delinquent if they are 90 or more days overdue or in non-accrual status, while CMBS providers consider loans delinquent if they are 30 or more days overdue or in the real estate-owned category.


The rise in bank delinquency rates for commercial mortgages, particularly non-multifamily loans like office spaces, was driven by banks designating these loans as 'nonaccrual.' This classification means that while the loans may still be current on payments, the banks do not expect to be repaid in full, reflecting a growing concern over the viability of these loans.

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