Lenders Lose Less on Multifamily Loans, MBA Says

The Mortgage Bankers Association has reported that lenders lost less on multifamily mortgages in 2011 than they did in 2010, another sign of the increasing strength of the multifamily market.

Washington, D.C.—The Mortgage Bankers Association has reported that lenders lost less on multifamily mortgages in 2011 than they did in 2010, another sign of the increasing strength of the multifamily market. In a Research DataNote analyzing year-end data from the FDIC, MBA found that in 2011, banks and thrifts charged off 0.74 percent of their multifamily mortgages, compared with 1.24 percent in 2010.

The charge-off rate for multifamily loans for banks and thrifts was also low in 2011 compared to other kinds of loans. Lenders charged off 0.89 percent of their balance of commercial real estate loans; about 1.43 percent of their one-four family residential loans; 1.25 percent of other (non-credit card) loans to individuals; 3.33 percent of their construction loans; and 5.45 percent of their credit card loans, according to the MBA.

Over the course of each year from 2007 to 2011—the worst of the recession and the slow recovery—banks and thrifts charged off $181 billion of single-family mortgages, $178 billion of credit card loans, $81 billion of construction loans, $65 billion of other loans to individuals, and $35 billion in commercial property mortgages. By contrast, over the same period, they had to charge-off only and $8 billion in multifamily mortgages.

In a separate report, and as a measure of potential future losses posed by multifamily mortgages, the MBA noted that multifamily mortgage delinquency rates generally declined during the fourth quarter of 2011. The 60+ day delinquency rate for multifamily loans held or insured by Freddie Mac, for example, fell 0.11 percentage points during the quarter to 0.22 percent. The 60+ day delinquency rate for multifamily loans held or insured by Fannie Mae, however, increased a meager 0.02 percentage points to 0.59 percent.

Historically speaking, these are quite low rates, especially when compared to the spike in delinquencies during the early 1990s S&L crisis. During 4Q11, the delinquency rate for multifamily loans held by Freddie Mac was 6.59 percentage points lower than the all-time high (6.81 percent, reached in the fourth quarter of 1992) and the rate for multifamily loans held by Fannie Mae was 3.03 percentage points below the absolute high (3.62 percent, reached during the fourth quarter of 1991).

“Commercial and multifamily mortgage delinquency rates continue to stabilize and improve in parallel with the broader economy,” Jamie Woodwell, MBA’s vice president of commercial real estate research, said in a press statement. “And counter to what many have predicted, commercial mortgages have proved to be neither ‘the next shoe to drop’ nor a ‘ticking time bomb’ for the banking sector or the economy as a whole.”

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