Late payments on the rise – a sign of bigger issues?
Commercial mortgage delinquency rates increased in the fourth quarter of 2024, according to the latest Commercial Delinquency Report released by the Mortgage Bankers Association (MBA).
“Commercial mortgage delinquency rates increased in the fourth quarter of 2024, with the exception of life company loans, which showed a slight decrease,” said Mike Fratantoni, MBA’s senior vice president and chief economist. “Even with certain market challenges such as low occupancy rates and the uncertain impact of return-to-office mandates in the office market, and oversupply in the multifamily property market, delinquency rates remain relatively low from a historical perspective.”
The MBA report noted that nearly a trillion dollars’ worth of commercial and multifamily loans are set to mature in 2025. Fratantoni warned that these upcoming maturities, combined with challenging economic conditions and steady interest rates, could lead to further delinquency increases if borrowers struggle to refinance their loans.
The quarterly analysis assessed delinquency rates across five major capital sources, which together hold more than 80% of commercial mortgage debt. These include commercial banks and thrifts, commercial mortgage-backed securities (CMBS), life insurance companies, and government-sponsored enterprises Fannie Mae and Freddie Mac. Each institution measures delinquencies differently, making direct comparisons challenging. For instance, Fannie Mae classifies loans under forbearance agreements as delinquent, while Freddie Mac does not if the borrower is compliant with the agreement.
Delinquency rates by capital source
Based on unpaid principal balance (UPB), the delinquency rates for each category at the end of the fourth quarter of 2024 were as follows:
- Banks and thrifts (90 or more days delinquent or in non-accrual): 1.26%, a 0.02 percentage point increase from Q3 2024.
- Life company portfolios (60 or more days delinquent): 0.43%, a 0.03 percentage point decrease from Q3 2024.
- Fannie Mae (60 or more days delinquent): 0.57%, a 0.01 percentage point increase from Q3 2024.
- Freddie Mac (60 or more days delinquent): 0.40%, a 0.01 percentage point increase from Q3 2024.
- CMBS (30 or more days delinquent or in real estate-owned (REO) status): 5.78%, a 0.63 percentage point increase from Q3 2024.
The MBA noted that construction and development loans are typically not included in the reported numbers. However, some regulatory definitions of commercial real estate do include these loans, particularly those backing single-family residential development projects rather than income-producing properties. The FDIC’s delinquency rates for bank and thrift-held mortgages include loans secured by owner-occupied commercial properties.
How do you think these rising delinquency rates will impact the market? Share your insights in the comments below.
