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When Was The Last Time Commercial Loan Default Rates Reached This Level?
You would have to go back to 1993 during the S&L crisis to see similar levels of commercial loan defaults. The national default rate for commercial real estate mortgages held by banks and other depository institutions reached 3.4 percent in the third quarter, up 0.52 percentage point from the second quarter. This was the highest quarterly jump since such data was made available. In 1993, the default rate on commercial properties – retail, commercial, hotel, industrial, and multifamily – reached 4.1%.
What constitutes the default rate? It’s the percentage of loans on a dollar basis, not volume, that are past due 90 days or more, in which lenders don’t expect to be repaid in full.
For apartment buildings, the default rate reached 3.58 percent, up from 3.14 percent in the second quarter. The default rate on multifamily mortgages also has more than doubled over the last year.
Leading analysts agree that commercial mortgage defaults will likely peak in 2011 at a rate north of at least 5%.
How far north? The rate could climb past 7 to 8 percent in 2010. By dollar volume, various loans issued in 2006 and 2007 continue to show signs of stress. Furthermore, older loans mature without prospects of being refinanced due to lack of available credit and equity.
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