Commercial and multifamily mortgages had the lowest charge-off rates of any loan type at banks and thrifts in the fourth quarter of 2009, according to the Mortgage Bankers Association's (MBA) March 2010 DataNotes report. According to the MBA's research, commercial and multifamily loans actually outperform the overall portfolio of loans and leases held by banks and thrifts.
One- to four-family unit residential loans constitute the largest share of banks' loan holdings, at $1.9 trillion, or about 26% of the total. At $211 billion, multifamily mortgages account for 3% of bank-held loans and leases.
At the end of the fourth quarter, commercial and multifamily mortgages had 30+ day delinquency rates of 5.06% and 5.64%, respectively. These rates compare favorably to the 7.3% of all bank and thrift loans that were 30+ days delinquent, the MBA notes. Construction loans performed the worst, with a delinquency rate of 18.56%, while single-family mortgages came in second place, with a 12.49% delinquency rate.
The performance of multifamily and commercial mortgages, as with all mortgage sectors, deteriorated in the fourth quarter, with delinquency rates rising 0.5 percentage points for commercial mortgages and 0.9 percentage points for multifamily. By comparison, single-family mortgage delinquency rates increased by 1.3%.
Over the course of last year, commercial and multifamily mortgages had the lowest charge-off rates of any loan type at commercial banks and thrifts – 0.8% of their balance of commercial mortgages and 1.1% of their balance of multifamily mortgages. The charge-off rate for commercial mortgages was less than half that of single-family mortgages – the next lowest group – and less than one-tenth of the rate for credit cards, the loan type with the highest charge-off rate.
Over the course of 2008 and 2009, banks and thrifts have charged off more than $83 billion in residential mortgages. By contrast, over the same period, they have had to charge off only $11 billion of commercial mortgages and $3 billion of multifamily mortgages.
"Commercial and multifamily mortgages provide security to their lenders in that a) even when under stress, the commercial property continues to provide some level of income to help pay its debt service, except in the most extreme situations, and b) for every loan, there is a real, tangible asset pledged as collateral, should the loan become delinquent. For these reasons, commercial and multifamily mortgages have historically not experienced the same rate of losses as most other types of loans," MBA DataNotes says. "This is evident in the charge-off rates experienced by banks and thrifts."
SOURCE: Mortgage Bankers Association