New Report Warns of Increased Risk of Loan Delinquencies: Wave of Impending Loan Maturities
The Lending Circle examines a new report which indicates that backup in the commercial mortgage-backed securities (CMBS) system could lead to increased risk of delinquencies in the future, as a wave of impending loan maturities comes to bear in 2013.
San Francisco, CA (PRWEB) October 29, 2012
A new report by the National Association of Insurance Commissioners warns that CMBS have more risk than last year as landlords need to repay maturing debt and vacancies remain elevated. Downside risk for CMBS relative to last year's assumptions has clearly increased, states the report, adding that the market is proving itself subject to highly disruptive shocks and has less time to deal with the coming wave of loan maturities.
More than $40 billion of CMBS loans are scheduled to mature for the remainder of 2012 — the largest number of loans maturing this year than any other because of the issuance boom in 2007, the report warns. One noteworthy trend is that the balance of matured loans and the percentage of loans extended were both twice as high in the first quarter of 2012 compared to first quarter of 2011, largely attributable to 2007-vintage loans. The first quarter of 2012 payoff rate for floating rate loans was 73.1% (higher than 69.2% in the first quarter of 2011) and 43.7% for the fourth quarter of 2011. Currently, 49.1% of outstanding floating rate loans are being specially serviced, the report points out.
Because of maturing loans and distressed debt, many lenders are unable or unwilling to make new loans. The Lending Circle addresses this problem, and works with borrowers to find solutions among nationwide lenders who will lend as well as alternative solutions.
The report warns that too much depends on the state of the economy. If the economy continues to grow, even at its rather slow pace, there will be a relatively low rate of delinquencies. But if the economy suffers, the rate of delinquencies could increase markedly as so many of the loans are already in special servicing and in fragile condition. Also, given the extremely large volume of loans maturing this year, the probability of a larger percentage of them failing than predicted is considerable.
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