Mortgage Market Collapse! Commercial Mortgage Delinquencies Reach Horrible Record Levels

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In this video, we are going to discuss the big name brands that are feeling the financial strain of the pandemic with record levels of mortgage deliquencies. We’ll explain how we got to this point, what this means for the US economy, and where experts predict things will go from here.

As though the first round of lockdowns weren’t enough, the recent rollback of reopening plans across the US has pushed many already struggling businesses into an even worse position. What we are seeing now is a historic spike in delinquencies on commercial mortgages.

The situation is so dire that delinquency rates across commercial mortgage-backed securities (CMBS) have tripled over the course of the last three months, reaching 10.32 percent, just shy of the last peak in delinquencies, which occurred nearly a decade ago, when the rate hit 10.34 percent in 2012. The current trend represents a growing flood of restaurants, hotels, and other vulnerable businesses that have seen their profits collapse as a result of the pandemic, leaving them unable to afford monthly payments.

In the aftermath of the unprecedented housing bubble burst that sparked the Great Recession of 2007-2009, it took around three years for mortgage delinquency rates to hit record highs. Now, we have seen the cause and effect of an economic collapse and subsequent surge in commercial mortgage-backed securities on a highly condensed timeline, which has given businesses far less time to brace for impact and consider long term strategies for staying afloat.

Up until March, when the pandemic began to put serious stress on the United States and pushed many economic indicators into dangerous territory, the country’s overall delinquency rate had been on the decline for 27 months in a row. Moreover, serious delinquency and foreclosure rates were coming in at all time lows. But as job losses surged and unemployment climbed to the highest peaks in more than 80 years, it became more and more difficult for homeowners to keep up with their monthly mortgage bills.

Since March, the indicators have only gotten worse. The delinquency rate in April climbed to 6.45 percent from 3.39 percent the month before. Then, in May, it jumped even further to 7.76 percent. If you look at this figure as a number instead of a percentage, it represents 4.12 million mortgages in the United States that had payments more than 30 days past due.
Nationwide, serious delinquencies, which are mortgages that have payments more than 90 days overdue but are not yet moving into foreclosure, spiked by more than 50 percent over the past two months.
But more later-stage delinquencies and even foreclosures are on the way. Experts anticipate that home prices will decline by 6.6 percent between now and May 2021, which will wipe out home equity cushions for borrowers.
As delinquency rates continue to climb, we will also see a jump in defaults, which occur when borrowers are unable to make payments for an extended period of time, typically 60 days. In May and June alone, defaults on CMBS loans spiked an almost unbelievable 792 percent to a total of $5.5 billion.

As things continue to spiral, these unstable properties could easily suffer foreclosure, allowing lenders to step in and sell off a renter’s assets in order to make good on the loan.

The Federal Reserve, in a move they hope will inject enough needed liquidity into the suffering mortgage market, has been purchasing CMBS loans with the highest credit quality. This policy also serves to finance small and medium sized properties that are home to small businesses. After all, small businesses have been particularly vulnerable throughout this crisis, and over 100,000 of them have been forced to shut their doors permanently. If the Fed is able to spare a greater number of these businesses, it would positively impact employment as well, opening up millions of jobs for desperate Americans.

However, if the current trends in policy are any indication, it doesn’t seem likely that any positive changes are on the way. Experts anticipate that a worsening economic climate and new surges of the pandemic across the country will continue to push more companies into the red. So buckle down and prepare for the wave of mortgage delinquencies–both for businesses and for individuals–to keep on growing.

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Epic Economist

Epic Economist

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