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Apartment Loans, Vintage CMBS Delinquencies Rise

Delinquencies among both multifamily loans of varying vintage and 2005 vintage commercial mortgage-backed securities (CMBS) increased for the third straight month in September, reports Manhattan-based Fitch Ratings.

Unlike the overall CMBS delinquency rate, which actually fell by one basis point to 0.29% last month, the health of 2005 vintage CMBS as well as multifamily loans has noticeably weakened in recent months. Case in point: September brought a total of 20 newly delinquent multifamily loans worth $78.7 million, which helped boost the dollar volume of multifamily CMBS delinquencies by 10.4% last month.

“Multifamily loan performance has suffered in areas with stressed economic conditions,” says Fitch director Michelle Bayard. “Slower employment growth combined with housing price depreciation creates [population] declines that erode demand for rental housing.” Fitch considers a loan delinquent when the borrower is 60 days late on their mortgage payment.

Michigan, Florida and Texas accounted for roughly 75% of all delinquent multifamily loans in September, reports Fitch. Meanwhile the vintages with the highest concentration of delinquencies were 2005 (36.2%), 2003 (21.2%) and 1999 (11.8%).

“The delinquencies in 2005 vintage may indicate that delinquencies are occurring sooner than in the past,” adds Bayard. “Historically, loan delinquency rates have spiked after three years of seasoning, with the highest rates occurring after the eighth year.”

Bond investors could also be facing more delinquencies from 2006 vintage CMBS. That year, for example, CMBS issuance notched a record $210 billion, reports Commercial Mortgage Alert. Issuance registered $163 billion in 2005 as a scorching sales market fueled demand for securitized debt.

But as these latest Fitch statistics show, 2005 through 2007 vintage CMBS are likely to experience rising default rates on loan collateral. Bondholders, in turn, could suffer principal losses in the CMBS market.

“Loans from vintages 2005 through 2007 [do] have higher concentrations of interest only loans -- higher loan-to-values -- and allow for additional subordinate debt, which makes them more likely to default,” says Britt Johnson, senior director in Fitch’s CMBS group.

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