Covid lockdowns and unpaid rents increase commercial mortgage defaults in the United States

The Mortgage Bankers Association’s latest monthly MBA CREF loan performance survey reported this week that default rates for mortgages backed by commercial and multi-family properties increased for the second consecutive month in December 2020.

“The increase in delinquencies on commercial and multi-family mortgages in December is a symptom of the economic downturn resulting from the recent increase in COVID-19 cases,” said Jamie Woodwell, vice president of commercial real estate research at the MBA . “Payment defaults initially surged in April and May, due to the impact of the pandemic on accommodation and retail properties. For several months, delinquency rates declined as the economy stabilized. But more recently, the added stress of a winter wave of viruses has weakened the rollout of several COVID-19 vaccines is good news for the long term, but last month’s increase in commercial mortgage delinquencies is strengthening the fact that many challenges remain to be met between now and when the economy can fully reopen. “

Main findings of the CREF MBA loan performance survey for December 2020:

Non-current commercial and multi-family mortgage balances increased for the second consecutive month in December, as more loans became newly past due.

• 94.0% of outstanding loans were current, up from 94.3% in November.
• 3.5% were over 90 days past due or in REO, unchanged from the previous month.
• 0.4% were 60 to 90 days past due, unchanged from the previous month.
• 0.7% were 30 to 60 days past due, unchanged from the previous month.
• 1.5% were less than 30 days past due, compared with 1.0%.

Loans backed by housing and retail businesses continue to be the most strained. The overall share of mortgage, office and industrial loan balances that are past due increased in December.

• 22.5% of the home loan balance was uncommon in December, up from 22.1% in November.
• 11.9% of the personal loan balance was in arrears in December, compared to 12.9% in November.
• Long-term rates for other types of properties were lower but generally increased over the month.
• 4.2% of outstanding industrial mortgage loans were non-current, against 2.5% in November.
• 2.7% of outstanding office mortgage loans are long-term compared to 2.4%.
• 1.7% of multi-family balances were non-current, up from 1.6% a month earlier.

Due to the concentration of hotel and commercial credit, CMBS credit default rates are higher than other sources of capital.

• 10.5% of outstanding CMBS loans were non-current in December, compared to 10.4% in November. Long-term rates for other sources of capital were more moderate and mixed.
• 2.6% of FHA’s multi-family and healthcare loan balances were non-current, down from
• 2.8% in November.
• 1.9% of outstanding loans from life insurance companies were non-current, up from 1.7% in November.
• 1.3% of GSE loan balances were non-current, stable compared to November.