It's debatable if the fiduciary standard is 'higher' than suitability. But the better question might be, who's holding the bar?
Dec. 24--Delinquency rates for commercial real estate loans continued an overall modest decline in the third quarter, although the sector continues to feel the drag of sluggish economic growth, high unemployment and anticipated tax increases.
The 90-plus-day delinquency rate for loans held nationwide by FDICinsured banks and other financial institutions was 2.9 percent in July-September, down from 3.8 percent a year earlier, according to the latest commercial mortgage delinquency report from the Mortgage Bankers Association.
Commercial mortgages tend to have the lowest charge-off rates of any major loan type held by banks, the report notes. The delinquency data for banks does not include loans backed by owneroccupied commercial properties, which typically have different underwriting criteria.
"Banks hold the majority of real estate loans in the U.S." said Peter Gineris, head of debt and equity finance at the Albuquerque office of CBRE, a commercial real estate services firm. "They are very conservative in their lending today, but have traditionally been the most accessible lenders."
Commercial mortgagebacked securities, or CMBS, have only been around for about 15 years and became a popular financing tool during the robust dealmaking years of 2004-08.
These loans originate with banks, most commonly big ones like Citibank and Goldman Sachs, then are bundled together and sold as investment securities on Wall Street. Once the securities are sold, the original banks get paid and are out of the deal, Gineris explained.
The 30-plus-day delinquency rate for loans held nationwide in CMBS was 8.9 percent in July-September, essentially the same as it was a year earlier. For comparison, the 30-plusday delinquency rate for home loans was 7.6 percent during the same period, the Mortgage Bankers Association reported.
The CMBS delinquency rate for loans in the Albuquerque metro area has been a little lower than the national average, primarily because it's a smaller market, Gineris said.
"The CMBS lenders have been a bit less aggressive when lending in Albuquerque than they have been in the major metro markets and '24-hour' cities," he said.
CMBS loans here have tended to be a little more conservative, with more of a cushion against declines in value and net income, he said. In addition, the local market did not see "significant overbuilding" during the boom that has led to a high proportion of distressed properties in many larger metros.
The 60-plus-day delinquency rate was 0.1 percent in the third quarter, down from 0.2 percent a year earlier, for commercial mortgages in investment portfolios held by life insurance companies, major lenders in the commercial real estate market.
The money that life insurance companies put into real estate loans will one day be needed to pay insurance claims, thus the companies are conservative in how they lend, Gineris said. They typically lend to the cream of the crop, such as buyers with top credit purchasing higher-quality properties.
"All this leads to a lower delinquency rate for life (insurance) company lenders," he said.
What constitutes a delinquent loan varies among the lending groups, such as 90-plus days for banks, 30-plus days for CMBS and 60-plus days for life insurance companies. As a result, the association's report notes that "delinquency rates are not comparable from one group to another."
In addition to the private capital sources, Fannie Mae and Freddie Mac are the biggest players in loans for multifamily or apartment properties.
The 60-plus-day delinquency rate for loans held or guaranteed by Fannie Mae was 0.3 percent in the third quarter, down from 0.6 percent a year earlier. The 60-plus-day delinquency rate for loans held or guaranteed by Freddie Mac was 0.3 percent in the third quarter, essentially unchanged from a year earlier.
The low GSE delinquency rates stem largely from apartments being the strongest overall commercial property type in the country right now, Gineris said.
Altogether, the five lending groups -- banks, CMBS, life insurance companies and the two GSEs -- hold more than 80 percent of the outstanding commercial real estate mortgage debt, according to the association.
In general over the past 15 years, the five investor groups saw their lowest delinquency rates during 2004-08 and their highest rates in 2010. The recent highs in delinquency rates for each group were still well below the record highs set during the commercial real estate crash of 1991-92.
(c)2012 the Albuquerque Journal (Albuquerque, N.M.)
Visit the Albuquerque Journal (Albuquerque, N.M.) at www.abqjournal.com
Distributed by MCT Information Services