CMBS Delinquency Rate Falls from Near-Record High
The commercial mortgage-backed securities delinquency rate fell again in August after posting a big decline July.
Trepp, New York, said the CMBS delinquency rate fell 58 basis points in July to reach 9.02 percent. Nearly $6.5 billion in loans “cured” in August, helping the rate post another sizable decline, said Trepp Senior Managing Director Manus Clancy.
“By ‘cure,’ we mean that the loan was delinquent in July but reverted to current or in or beyond grace period status in August,” Clancy said. “Some of these cures came as a result of forbearances being granted and borrowers being authorized to use reserves to make the loan current. In other cases, relief was canceled or withdrawn by the borrowers and the loans were brought current without relief.”
Earlier this summer, Trepp said the CMBS delinquency rate could be approaching “terminal delinquency velocity,” meaning most borrowers that felt the need for debt service relief have already requested it. “Put another way, if a borrower didn’t need relief between April and June, there is a good chance the borrower won’t be needing it–although maturity defaults could still be an issue,” Clancy said.
But with relief windows ending for some loans and new parts of the country being hit with the virus for the first time over the last 60 days, Clancy said an uptick in delinquencies in the future is possible. “Going forward, we believe future increases in the delinquency rate will be more modest than what we had seen during the height of the coronavirus crisis,” he said.
Kroll Bond Rating Agency, New York, noted conduits led much of July’s delinquency rate decrease. “In July, the decline was mainly driven by the removal of some large balance single-asset/single-borrower and large loan deals after borrowers entered into forbearance and modification agreements, at which time the related loans were generally reflected as current,” the rating agency’s Loan Performance Trends report said.
KBRA observed that loans in special servicing are still increasing, but at a slower pace than earlier this year. The $18.7 billion of specially serviced loans in August represented an increase of $2.3 billion from the previous month compared to nearly $5 billion of monthly increases in both June and July. But a sizeable amount of delinquent loans–$4.8 billion– has not yet transferred to the special servicer. “This indicates that the amount of specially serviced loans will most likely continue to increase, albeit at a decreased rate, unless special servicers can bring down the number by working with borrowers to bring the loans current through forbearances and other modifications and have the loans transferred back to the master servicer,” the report said.
