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CMBS Delinquencies Contribute to Rising Number of Bank Failures

The delinquency rate for commercial mortgage-backed securities lose sharply in March to more than 7%, according to New York-based data and analytics firm Trepp LLC.

Troubled commercial real estate and construction loans are contributing to higher bank failure rates, Trepp reports. The researcher projects that 200 banks will fail in 2010.

Many of the failures to date have occurred in Florida, Georgia and California, as well as in the rust belt markets of Illinois, Wisconsin, Minnesota and Michigan.

The banks are already feeling the effects of the highest delinquency rate in CMBS history at 7.61%. The percentage of loans 30 or more days delinquent, in foreclosure or REO, jumped 89 basis points, according to the new report.

The March figure includes the $3 billion Stuyvesant Town multifamily loan in New York, which drove the March rate up by about 40 basis points.

Researchers had been optimistic that delinquencies were leveling off, because the rate in February was the smallest in nine months. However, the steep increase in March showed that the delinquency rate has not yet peaked.

The percentage of loans seriously delinquent, or at least 60 days past due, in foreclosure, REO or non-performing, rose 69 basis points to 6.66%, according to Trepp.

A year ago, the delinquency rate was less than 2%. The year-over-year increase in March 2010 represents a 400% rise over March 2009.

Among property types, the highest delinquency rate occurred in the hotel sector, reaching nearly 17%, up from 15.65% in February, Trepp reports. A year ago, the delinquency rate in the lodging sector was just 2.19%.

Meanwhile, delinquencies in the multifamily sector rose to 13.19%, up steeply from 9.87% in February. The multifamily sector recorded a delinquency rate of 3.86% in March 2009.

The office sector had the lowest delinquency rate in March, 4.73%, up slightly from 4.33% in February.

Meanwhile, as the delinquency rate rose, overall CMBS spreads dropped 40 to 45 basis points for March, according to Trepp. For the first quarter of 2010, the highest-rated CMBS bonds saw spreads drop 105 to 115 basis points over the last 3 months.

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