Debate on Delinquencies

NREI has a report indicating that CMBS delinquencies aren't yet rising and, in fact, fell in January. There's been a lot of talk in the market about commercial real estate and CMBS being the next shoe to drop in the credit crunch. This data indicates it isn't quite happening just yet. However, there's still some debate on the matter. Fitch and Standard & Poor's don't quite agree and that's partially because they have different definitions of delinquency.

Valentine's Day brought more evidence that illiquidity in the CMBS market has little to do with current loan performance: A report from Fitch Ratings revealed that U.S. CMBS delinquencies fell by one basis point to a historical low of 0.27% in January.

“Out of the over 40,000 loans in the Fitch-rated universe, only 293 are delinquent,” says Susan Merrick, managing director at Fitch.

Measures of whether CMBS delinquencies are decreasing or increasing are partially a matter of perspective, however. That explains why rating agency Standard & Poor's has been warning of increasing delinquencies for a year.

Unlike Fitch, which defines a loan as delinquent when it is at least 60 days overdue, Standard & Poor's counts loans delinquent after only 30 days. By Standard & Poor's calculations, CMBS delinquencies have been on the rise since hitting a low of 0.27% in the first quarter of 2007. Delinquencies reached 0.34% in the fourth quarter, up 5 basis points from 0.29% in the third quarter, according to a Standard & Poor's report published Feb. 8.

What the agencies do agree upon is that the dollar amount of delinquent loans is increasing, and recent years of excess are contributing a growing portion to the delinquent pie. Total delinquent CMBS increased 19% to $2.279 billion in the fourth quarter from $1.915 billion in the third quarter, Standard & Poor's found. Of that year-end amount, nearly half came from loans originated in the past three years.

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