CMBS delinquencies soared in June as the threat of forbearance transitioning into foreclosures increase due to the rising cases of COVID-19 infections and CARES ACT unemployment benefits ending soon.
Commercial mortgage-backed securities (CMBS) delinquencies soared in June, according to Fitch Ratings. The delinquency rate went up to 3.59 percent last month or an increase of 213 basis points from 1.46 percent in May. This increase is the most substantial month-over-month increase since the index began almost 16 years ago.
The new delinquencies totaled $10.8 billion in June, exceeding the resolution volume of $172 million. Fitch projects the delinquency rate to peak between 8.25 and 8.75 percent by the end of Q3 2020.
Delinquencies could negatively impact property valuations, Fitch's senior director - CMBS Melissa Che said, which makes it concerning because they could result in CMBS investors incurring losses.
A trend of 30-day loan delinquencies extending to 60 days at a much faster rate has also been seen, and experts at Fitch Ratings say it could continue with the volume in special servicing to further increase over the summer.
All property types have shown a substantial increase in delinquency rates from May levels including Hotel (11.9% from 2.00%); Retail (7.86% from 3.82%); Mixed-Use (4.17% from 0.95%); Office (1.92% from 1.39%); Industrial (0.67% from 0.28%); Multifamily (0.59% from 0.41%): and other (0.93% from 0.82%).
When commercial loans go wrong, they are transitioned to forbearance or repayment plans. From March through May, there have been 439 CMBS loans that went to special servicing, or a total of $21 billion, compared to 674 CMBS loans or a total of $9 billion for the entire 2019, the CNBC report said.
Meanwhile, the $600-per-week federal unemployment is nearing the July 30 end date. And as the number of COVID-19 infections continues to rise, the possibility of mortgage forbearances turning into foreclosure increases, the Federal Reserve Bank of Atlanta said.
The CARES Act unemployment benefits have kept the forbearance rate lower than forecasts of 20 percent to 30 percent increase, which stood at 8.6 percent of all of the active mortgages in the final week of June, Housing Wire reported.
Once the unemployment benefits end and the economy are still weak, foreclosures could rise, the report said. Congress needs to enact additional economic relief measures to prevent the pandemic from causing long-term damage to the U.S. economy, Federal Reserve Chairman Jerome Powell said.
Many households are still struggling to pay their bill, the United States Census Bureau - Household Pulse Survey said. The experimental HPS is a weekly survey that was started on April 23, 2020, to quickly deploy data related to how the COVID-19 pandemic impacts the lives of American households.
According to the latest release (June 18 - June 23), 12 percent of households were unable to make their mortgage payment on time while forty-one percent deferred their mortgage payment, NAR reported.
Of those who were unable to meet their obligations on time, 31 percent said they used the stimulus package but was not enough; 44 percent of them lost income from employment. A majority of respondents or 63 percent said they are highly confident of their ability to pay next month's mortgage, while 21 percent are moderately confident.
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