NEW YORK – Commercial mortgage-backed securities delinquencies are rising in the wake of hurricanes Katrina and Rita, after declining for most of the past year.
The delinquency rate on fixed-rate commercial mortgage backed securities – which measures the number of loans for which borrowers are 30, 60, 90 or more days behind in making payments and includes loans in foreclosure – rose in October for the first time in 11 months, to 1.34 percent from 1.23 percent in September, RBS Greenwich Capital said in a mid-November report.
RBS Greenwich’s fixed-rate database includes 48,794 loans with a total balance of just under $286 billion. The total size of the commercial mortgage backed securities universe outstanding is approximately $576 billion.
The rise in delinquencies “can be attributed to the effects of hurricanes Katrina and Rita,” RBS Greenwich said in the report. In the affected areas, “many borrowers are waiting for either insurance proceeds to kick in and/or for business to pick up,” and meanwhile are having difficulty making monthly payments on loans.
Though not a surprise given the storms, the uptick in delinquencies nonetheless has thrown something of a wrench in long-term forecasts for the commercial mortgage-bond industry.
“The industry has been expecting delinquencies to decline, and this is something that could turn around that decline, at least temporarily,” said Patty Bach, senior director in the commercial mortgage backed securities group for Fitch Ratings in Chicago.
That the delinquencies are hurricane-related seems to be confirmed by the rise in new shorter-term delinquencies, or the increase in the number of borrowers who have recently gotten 30 days behind in their payments. In October, it increased to 0.36 percent, affecting $1.03 billion in loans, from 0.17 percent, or $478.5 million in loans, in September, according to the RBS Greenwich report.
Furthermore, of the 190 loans that were newly delinquent in October, 119, or 62.6 percent, are located in Florida, Louisiana, Mississippi and Texas, all states affected by the recent hurricanes, RBS Greenwich said.
Louisiana alone accounted for $266.7 million, or 25.8 percent, of the $1.03 billion in new 30-day delinquencies in October, the report said. Texas is close behind with $265.1 million, or 25.7 percent, followed by Mississippi with $71 million, or 6.9 percent and Florida with $62 million, or 6 percent.
Multi-family loans – or loans backed by dwellings built for several families – saw fixed-rate delinquencies rise to 2.59 percent in October from 2.14 percent in September, the RBS Greenwich report said. In hurricane-affected areas, 63 percent of delinquent loans are secured by multi-family assets, according to the report.
“This is not surprising given the large renting populations in states such as Florida and Texas and the generally lower percentages of office properties, for example, in states like Mississippi and Louisiana,” RBS Greenwich noted.
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