"That's a big jump," Foresight principal Matthew Anderson tells GlobeSt.com. "We went out on a limb with that estimate; I was initially unsure about the projection but I feel more confident in the number now, it seems to be holding up as we get information from some of the biggest banks."
The increase is being driven by a sharp rise in nonaccruals--past due loans on which the lender has stopped accruing interest because full repayment is doubtful. Nonaccruals rose to an estimated 7.7% in the third quarter, according to Foresight, up from 5.7% in Q2 and 2.9% at year-end 2007.
The main source of the problem is of course single-family residential construction lending, the delinquency rate for which Anderson expects to come in at about 15% for the third quarter, up from 12.5% at mid-year. Commercial construction delinquency trends aren't broken out of the overall figure but Anderson says many smaller banks indicate rising delinquency rates for non commercial real estate construction, and the delinquency rate for commercial mortgages has been rising steadily since mid-2007.
Indeed, the pace appears to have accelerated in the third quarter. Foresight's estimate for commercial mortgage delinquencies in the third quarter is 2.4%, up from 1.9% at mid-year, which would represent the largest quarterly increase since it hit a low of less than 1% in 2006.
"It's still relatively low in the scheme of things," he says. "Delinquency rates for commercial mortgages were about 7.5% at the end of 1991 and they are still quite low compared to the residential sector; but the rate has been rising steadily and I wouldn't say we've reached the peak yet. The recent seizure in the credit markets really first hit in mid-September and would not be reflected in the third quarter figures."
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