An analysis of FDIC (Federal Deposit Insurance Corporation) data shows that the default rate for commercial real estate mortgages has significantly increased in the recent past.
The data reveals that the commercial mortgage default has risen from 2.88% in the 2nd quarter to 3.4% in the 3rd quarter of 2009. During this time, the multifamily mortgage defaults have risen to 3.58% from 3.14%.
Expected rate of commercial mortgage default in the next 2 years
The more shocking fact is that the industry experts are expecting that the default rate will continue increasing in the next 2 years. 
It is expected that the default rate in commercial real estate mortgages will rise to about 4% in the 4th quarter of 2009 and it may increase to 5.2% and 5.3% in 2010 and 2011 consecutively.
Moreover, the interest rates on adjustable rate mortgages are likely to reset in 2010, which will make it more difficult for the borrowers to pay back the home loan.
The above numerical figures reveal that the delinquency rate for commercial real estate mortgages is the highest in the last 15 years.
Moreover, a recent Federal Reserve data reveals that the write off and delinquency rates for commercial real estate loans at all banks have increased considerably.
The rate in the 3rd quarter of 2009 was 8.74%, which is nearly double the rate as compared to the same quarter in 2008. The rate in the 3rd quarter of 2008 was only 4.74%. The experts predict that the rate may even rise to 12.06%.
Measures to overcome the present situation
The rise in delinquency rate calls for government intervention.
Several policies have been enacted to encourage the securitization activity.
According to Chandan, the President and Chief Economist at REEcon, it is the need of the time to evaluate the individual performances of the banks.
Thirty-six banks have already been evaluated and possess less than $20 billion in assets. It is in sharp contrast with the 4 biggest lenders in US that possess comparatively more assets.
The industry experts are of the view that if some banks are able to manage the risks, then it is the need of time that other banks also study and implement the practices as well. It will help the less equipped banks to handle crisis more efficiently.
You can visit this site to know more about the current mortgage market in US.
This has been a guest post from Sandy Thomason from the Mortgage Fit Community - a community where members provide personalized guidance on mortgage questions.
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{ 3 comments… read them below or add one }
Coming out of the residential side of mortgages, I’m not qualified to know what the situation is with commercial loans. But there has been a ton in the press about it, saying basically what you’ve said here.
The situation seems reminiscent of the mortgage mess with back page stories and front page denials. We’ll have to wait and see how it all plays out, but I have a feeling the nation will be better able to weather the commercial fallout, if only because we’re already in crisis mode.
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Kevin, thanks for the comment. I hope you’re right in that we’ll be able to better weather the storm, but some folks I’ve heard talking about it say the commercial side will affect small businesses which typically drive the growth of the economy – so we might be in for a long uphill battle to recovery.
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Why is it shocking? As the economy goes down commercial mortgage default rates will naturally rise.
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