Concern Grows With Surge in Distressed Commercial – Analysts forecast that the delinquency rate will peak between 10% and 15% later this year.Commercial mortgages have been pegged as the last stage of the credit crisis. A combination of low sales at retail stores, shrinking offices as the ranks of unemployed grow, and lack of financing for new loans and refinancing of existing loans have contributed to the bleak outlook for this sector.
The performance of loans bundled in commercial mortgage-backed securities deteriorated sharply in February, raising fears that the coming wave of distressed loans may be much higher than expected. As of the end of last week, 30-day delinquencies surged to 6.93% from 6.4% in January, according to Barclays Capital. That is well above the normal level of less than 1%, and a key indicator of future delinquencies suggest that they may rise even further soon. Loans moved into special servicing have risen by $2.2 billion so far this month. That represents another 0.3 percentage point of the $770 billion market for commercial mortgage-backed securities. Loans are moved into special servicing when property owners are still current on their mortgage payments but are unable to refinance maturing loans or indicate they wouldn’t be able to keep up with future payments.
By Prabha Natarajan, Feb. 23, 2010 WSJ
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