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Defaults in Commercial Mortgages Slow Down

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By : Rudson Tren    99 or more times read
There is another sign that the commercial property market in the US is in the road to recovery. Delinquencies in US commercial Real Estate loans and default rates continued to move towards another record high in the third quarter, but the growth pace slowed.

A report released by the US Federal Deposit Insurance Corporation has shown that late payments (by 90 days) for commercial Real Estate loans increased to 4.36% in the three months ending September 30. It was higher by only 0.09% compared to the default rate of 4.27% in the second quarter. It was among the smallest increases in default rates since the start of the housing downturn.

Market analysts attributed the improvement to stabilizing Real Estate prices and rental costs in numerous markets nationwide. They added that increased strain on bank performances that are linked to commercial properties also became more measured.

The third-quarter default rate was still very high compared to an average rate of just 0.58% during peak two quarters of 2006 (second and third quarters). Analysts noted that it may still take so much for delinquency rates to return to boom-time levels, but, at least, growth in the rates tends to slow down now.

The record-high for defaults in commercial property mortgage payments was 4.55%. It was incurred in 1992, that time following 17 consecutive quarters of default rate increases.

Default rates were highest at huge lending institutions (with assets of more than $10 billion). Default rates at minor or smaller institutions (with total assets lower than $1 billion) were comparatively lower.

The slowing rate of defaults for commercial mortgage came along with several streaks of encouraging Real Estate data for the third quarter. Quarterly default rate on loans involving apartment buildings rose to 4.67% compared to 4.13% in the second quarter.

Earlier this week, Standard & Poor's released a report indicating a 3% rise in delinquency rate for commercial mortgage-backed securities or CMBS loans. The credit rating firm considers a loan delinquent if has not been paid by more than 30 days. Up to 8.32% of CMBS loans were delinquent in the third quarter. The percentage is equivalent to $46.8 billion. The quarterly growth rate of defaults in CMBS loans has also slowed considerably.

Overall rate of vacancy across many types of commercial properties also shrank in the quarter, according to the National Association of Realtors. The organization is confident that vacancy rates have already reached its peak and would soon show indications of improvement, probably by the end of the year.
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