Multifamily Mortgages Perform Well Between First and Second Quarters of 2023

In the second quarter, commercial and multifamily mortgage delinquencies increased compared with the first quarter of this year, according to the Mortgage Bankers Association’s (MBA) latest Commercial/Multifamily Delinquency Report.

“In general, multifamily mortgages continue to perform well. Delinquency rates on multifamily loans held by banks were essentially unchanged between the first and second quarters, and a rise in multifamily delinquency rates at Fannie Mae and Freddie Mac was driven by loans on senior properties,” says Jamie Woodwell, MBA’s head of commercial real estate research.

MBA’s quarterly analysis looks at commercial and multifamily delinquency rates for five of the largest investor groups—commercial banks and thrifts, commercial mortgage-backed securities (CMBS), life insurance companies, and Fannie Mae and Freddie Mac. These groups hold more than 80% of commercial/multifamily mortgage debt outstanding, and the analysis incorporates the measures used by each individual investor group to track the performance of their loans. Delinquency rates are not comparable from one group to another because each investor group tracks delinquencies in its own way, MBA notes.

Based on the unpaid principal balance (UPB) of loans, the report lists delinquency rates for each group at the end of the second quarter. Banks and thrifts (90 or more days delinquent or in non-accrual) saw a 0.66% delinquency rate, an increase of 0.09 percentage points from the first quarter. Life company portfolios (60 or more days delinquent) posted a 0.14% delinquency rate, a decrease of 0.07 percentage points from the first quarter.

For Fannie Mae (60 or more days delinquent), there was a 0.37% delinquency rate, an increase of 0.02 percentage points from the first quarter, while Freddie Mac (60 or more days delinquent) posted a 0.21% delinquency rate, an increase of 0.08 percentage points from the first quarter. CMBS (30 or more days delinquent or in REO) reported a 3.82% delinquency rate, an increase of 0.82 percentage points from the first quarter.

“Delinquency rates on loans backed by commercial real estate properties rose during the second quarter for most capital sources,” says Woodwell. “Although the uptick in delinquency rates was expected, they remain at the lower end of historical ranges. Higher and volatile interest rates, uncertainty about property values, and stresses in some property markets have increased pressure on some loans and properties.

“Not all commercial mortgage loans are facing the same pressures. Loans backed by properties, and property types with stable cash flows, are experiencing different prospects than those that may have seen declines in incomes,” Woodwell notes. “Additionally, long-term loans are experiencing less of a change in interest rates than those with shorter terms or adjustable rates. We expect these differences to continue to play out in coming quarters.”

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