Multifamily Loan Delinquencies Rise in February

Multifamily property and
hotel loans edged the overall commercial mortgage-backed securities delinquency rate up in February, according to Fitch Ratings–and the rise included a number of newly delinquent loans.

Commercial mortgage-backed securities may not have had as bad a year as anything connected to a residential mortgage had–but they’ve still had a hard time, according to Reuters.

And it’s all connected to the housing market: The commercial-backed securities met with concern that less-than-secure underwriting practices in 2007 may have made sketchier loans that wouldn’t be able to weather a U.S. recession. As the economy declined further, that fear increased.

And, as a result, $130 million in newly delinquent multifamily loans–which include apartment buildings–really influenced the increase in Fitch’s delinquency index, according to Managing Director Susan Merrick.

"Multifamily delinquencies continue to be overrepresented in the index, now comprising 60 percent of all delinquent loans." (Despite the fact they only represent 14.6 percent of the Fitch-rated universe.)

A couple of things to compare that to:

  • Office building-secured loans are 30.4 percent of all properties
    in the Fitch world and represented 11 percent of the overall
    delinquency index last month (even though office delinquencies were
    down by 1.1 percent last month).
  • Retail loans made up 15.2 percent of the delinquency index.

Fitch’s index measures loans that are at least 60 days delinquent in the $562 billion Fitch rated portfolio, a total of approximately 42,000 loans.

Delinquent multifamily loans reached $1 billion at the end of last month, a 14.5 percent increase from January 2008.

As this Las Vegas Review Journal article from two weeks ago illustrates, it’s a situation renters are all too familiar with: Across the country, many are being kicked out of their homes with no notice because their landlords failed to keep up with their payments and went into foreclosure.

If that trend continues–more landlords and loans entering into delinquency–it could have a huge affect on the housing market. Could the need for rental multifamily units increase? And should the industry be preparing for that possibility now? Or could that spur home sales, which might offer suddenly displaced renters more security at what is becoming each month a more reasonable cost?

What do you think?