Q3 commercial mortgage originations down from a year ago
Even though commercial and multifamily loan activity rebounded quarter-over-quarter, third-quarter dollar volumes were much lower than a year ago due to the effects of the pandemic, said the Mortgage Bankers Association.
The growth from the previous quarter is attributable more to seasonality than an economic rebound from the depths of the COVID-19 crisis. Activities related to government-sponsored companies and agencies have also provided essential support to the sector.
“Every major property type and every source of capital was down from the third quarter of last year,” Jamie Woodwell, vice president of commercial real estate research at the MBA, said in a press release.
“Builds backed by industrial and multi-family properties saw smaller declines than other property types, with multi-family loans being supported by loans to Fannie Mae, Freddie Mac and the Federal Housing Administration”
The MBA Commercial and Multifamily Loan Index is pegged at the dollar volume of origination activity for the average quarter in 2001 at 100. In the third quarter, the index was 169, down from 151 in the second quarter, but down from 316 a year ago. . The index reached a historic record at 365 in the fourth quarter of 2019.
In percentage terms, the strongest quarter-over-quarter growth among investor types was the commercial mortgage-backed securities market, up 749%, with an index value of 48. second quarter, CMBS activity all but disappeared, as seen in the index value of 6 for the period.
Compared to a year ago, CMBS activity was 116, down 58% year over year.
Fannie Mae and Freddie Mac saw a slight gain of 3% quarter over quarter to 680 from 658, although they were down 8% from 739 a year earlier.
The dollar volume of origination activity for life insurance companies was down 9% from the second quarter and 55% from a year earlier, while for commercial banks it was down 21% and 68%, respectively.
While all property types saw lower mounting activity year-over-year, only hotels and retail saw less activity compared to the previous quarter. The third quarter index value for the hotel was 20; in the fourth quarter of 2017, it peaked at 656.
Retail has been a struggling industry for some time, hitting troubling lows in recent years. In the third quarter, the retail trade index 24 was down 83% from a year ago.
Separately, the MBA said default rates for commercial and multi-family mortgages fell in October by the preceding monthbut loans already in default are in worse shape than before.
However, “there continues to be evidence of elevated stress, particularly among loans secured by retail and accommodation properties,” Woodwell said in a separate press release. “The share of loans that became newly delinquent fell again in October, but a larger share of non-current loans shifted to later payment arrears. Essentially, fewer loans are becoming delinquent, but those that are in suffering show fewer signs of healing.”
According to the MBA, 94.6% of outstanding loan balances were current with their payments in October, compared to 94.3% in September.
However, 3.4% of the remaining loans were 90 days or more past due or foreclosed, down from 3.5% a month earlier.
Meanwhile, 0.6% were 60 to 90 days past due, unchanged from September; 0.6% were 30-60 days past due, up from 0.7% previously; and 0.7% were less than 30 days past due, compared to 0.9%.
Since CMBS-backed loans are concentrated in the hospitality and retail sectors, it had the highest default rate among capital sources in October, at 9.9%. But that was down from 10.9% in September.
The default rate for FHA-insured multifamily loans and healthcare facilities was 2.4%, down from 2.6%. Mortgages from life insurers had a delinquency rate of 1.8%, down from 1.9%, and government-sponsored companies had a rate of 1.3%, unchanged from September.
About 21% of hotel loans were non-current in October, down from 22.1% in September, while 12% of commercial real estate loans were past due, down from 13.3%.