Total construction loan delinquencies shot up to an estimated 7.1%, up from 5.0% in the fourth quarter, eclipsing the previous high, 5.1%, registered at year-end 1994. The non-accrual rate—construction loans for which banks have stopped accruing interest because they don't expect the debtor to get back on track—also rose sharply during the quarter, to an estimated 4.4%, more than quadruple the rate during the first three months of last year.
Foresight principal Matthew Anderson tells GlobeSt.com the housing market meltdown accounts for the rapid deterioration in construction loan performance, and will likely drive delinquencies higher during 2008. Indeed, the figures may actually understate the problem, he says.
"Some regulators have complained that some lenders have been capitalizing interest payments," Anderson says. "Missed interest payments are being added to the principal so that they are still marked as performing even though there have been no cash payment or only a partial cash payment."
Total first lien single-family mortgage delinquencies appear to have risen to 5.0% during the first quarter, up from 4.3% at the end of the year, and more than double the 2.4%-rate reported for the first quarter of 2007. Non-accrual rates on residential mortgages jumped to 2.0% from 1.5%. The rate was 1.1% in the third quarter of 2007. The percentages are expected to continue to rise.
The total delinquency rate for commercial mortgages rose to an estimated 1.8%, up from 1.6% at the end of the 2007, and 1.4% in the third quarter of 2007. The non-accrual rate increased only slightly from the end of the year to an estimated 0.9%.
"The commercial mortgage sector remains much healthier than for-sale residential," Anderson says. "Some signs of thawing in the CMBS market may also indicate that the credit crunch could be easing slightly for commercial real estate. Nevertheless, CMBS spreads remain elevated and the recent upward trend in delinquencies bears watching."
The first quarter results are a continuation of a trend that began in mid-2006 and has not let up. The fourth quarter's 5.0% overall construction loan delinquency rate was up from 3.2% at the end of the third quarter and 2.4% at mid-year 2007. Delinquency rates for every type of construction loan—single family, apartment, condominium and non-residential commercial—have risen in each of the past seven quarters.
"It's pretty bleak," Anderson told GlobeSt.com in February. "You can see why the Fed and banking regulators are … moving into relatively high alert mode. Regulators are staffing up for increased levels of workouts. The FDIC has a list of 76 problem institutions currently, and that's always a bit of a lagging indicator, actually. If you were able to look through to underlying value of some of the mortgage portfolios out there, they wouldn't look too good."
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