The default rate on multifamily and commercial real estate loans held by the nation’s banks fell to 3.75 percent in the third quarter of 2011, consistent with Chandan Economics' assessment that banks’ commercial real estate default rates plateaued late in 2010 and will continue to improve absent a negative macroeconomic shock. The overall decline in the default rate corresponds with a drop in the rate for commercial mortgages - excluding multifamily - which fell to 3.92 percent. Reflecting the broader improvements in apartment fundamentals and values, the default rate for multifamily loans fell to 2.91 percent.
REO Balances Edge Up to New Cyclical High
While the largest banks may also hold the greatest absolute volume of non-performing multifamily and commercial loans, relatively smaller regional and community banks face some of the most significant challenges in managing distress. The portfolios of these institutions, which accounted for an increasing share of REO in the third quarter, are more heavily weighted to the secondary and tertiary markets where pricing has been slower to recover. Refinancing in these markets remains difficult, even for properties with stable cash flow, because of an absence of lenders seeking to expand their commercial real estate balance sheets.
Read more...Q3 2011 Bank Default and Lending Report | Chandan Economics