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Credit Markets and Economy Add Pressure to Commercial Mortgage Performance

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RISMEDIA, March 17, 2009-The weakening economy and continued credit crunch contributed to increases in commercial/multifamily mortgage delinquencies during the fourth quarter of 2008, according to the Commercial/Multifamily Delinquency Report from the Mortgage Bankers Association (MBA).

“As expected, the weakening economy continues to take a toll on the performance of commercial and multifamily mortgages,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “But counter to the popular urban myth, commercial and multifamily mortgages are actually performing better than just about every other type of loan. Of more than 35,000 commercial/multifamily mortgages held by life insurance companies, only 33 loans were delinquent at the end of 2008, and commercial/multifamily mortgages ended 2008 as some of the best performing loans held by commercial banks and thrifts.”

In addition to the Commercial/Multifamily Delinquency Report, the MBA released a Research Data Note reviewing the performance of commercial/multifamily mortgages held by banks and thrifts. The Data Note finds that commercial mortgages and multifamily mortgages are the best performing loans – ranking lowest among bank loans in terms of charge-off rates, second and third lowest in terms of 30+ day delinquency rates and second and third lowest in terms of increases in delinquency rates between the third and fourth quarter.

Between the third and fourth quarters, the 30+ day delinquency rate on loans held in commercial mortgage-backed securities (CMBS) rose 0.54 percentage points to 1.17%. The 60+ day delinquency rate on loans held in life insurance company portfolios rose 0.01 percentage points to 0.07%. The 60+ day delinquency rate on multifamily loans held or insured by Fannie Mae rose 0.14 percentage points to 0.30%. The 90+ day delinquency rate on multifamily loans held or insured by Freddie Mac stayed the same at 0.01%. (Note that in June 2008, Freddie Mac began reporting multifamily delinquencies as those loans 90+ days delinquent. Prior to that time the reported numbers are for loans 60+ days delinquent). The 90+day delinquency rate on loans held by FDIC-insured banks and thrifts rose 0.24 percentage points to 1.62%.

The MBA analysis looks at commercial/multifamily delinquency rates for five of the largest investor-groups: commercial banks and thrifts, commercial mortgage-backed securities (CMBS), life insurance companies, Fannie Mae and Freddie Mac. Together these groups hold more than 80% of commercial/multifamily mortgage debt outstanding.

The analysis incorporates the same measures used by each individual investor group to track the performance of their loans. Because each investor group tracks delinquencies in its own way, delinquency rates are not comparable from one group to another.

Based on the unpaid principal balance of loans (UPB), delinquency rates for each group at the end of the fourth quarter were as follows:

• CMBS: 1.17% (30+ days delinquent or in REO);
• Life company portfolios: 0.07% (60+days delinquent);
• Fannie Mae: 0.30% (60 or more days delinquent)
• Freddie Mac: 0.01% (90 or more days delinquent);
• Banks and thrifts: 1.62% (90 or more days delinquent or in non-accrual).

To put these numbers in context, of 35,069 commercial/multifamily loans in life company portfolios, with a total unpaid principal balance of $253 billion, only 33 loans with an aggregate UPB of less than $168 million were 60+ days delinquent at the end of the quarter. Of $1.3 trillion of commercial/multifamily mortgages at FDIC-insured banks and thrifts, only $21 billion was 90+ days delinquent.

For more information, visit www.mortgagebankers.org

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