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Commercial real estate defaults double
Real Estate Econometrics LLC says commercial mortgage default rate on loans held by U.S. banks more than doubled to 3.4% in the third quarter as vacancies rose and rents declined. Defaults climbed from 1.37% a year earlier and from 2.88% in the second quarter, the New York-based property research firm said today in a report. Default rates in the first three quarters of 2009 have been the highest since 1993, the firm said. “Mortgages originated in 2006 and 2007 are experiencing the most significant shortfalls in current cash flow relative to current debt-service obligations,” Sam Chandan, chief economist of the firm, said in the report. Federal Reserve Chairman Ben S. Bernanke said in a Nov. 16 speech that “the fallout” for banks from commercial real estate could slow the nation’s economic recovery. Defaults on bank-owned commercial property mortgages posted the biggest quarterly jump from the previous quarter in six years of FDIC data analyzed by Real Estate Eco
nometrics.
Auto delinquencies up in 3rd quarter
According to credit reporting agency TransUnion, auto delinquency rate -- the rate at which payments fell behind 60 days or more -- edged up in the July-to-September quarter to 0.81%, from 0.80 in the same period last year. Car loan payments that are 60 days or more late are considered a precursor to default because of the difficulty consumers face in getting caught up. TransUnion culls its data from approximately 27 million individual credit files in its database. The small increase in auto delinquencies compared with 2008 also reflects the fact that loans are harder to get, because banks and finance companies have raised their lending standards, and consumers are looking for fewer loans as they tighten their belts. Those factors led to a drop in average auto debt in the third quarter. Nationally, the amount outstanding on the average car loan dipped 2.5% to $12,542, from $12,861 last year. Loans taken out as part of this summer's Cash for Clunkers program had not started to appear on most credit reports when the quarter ended. As those new loans show up on credit files, there is a good possibility average auto debt will increase. But since lenders offered loans only to stronger applicants, those loans are less likely to end up delinquent, according to Peter Turek, automotive vice president in TransUnion's financial services group. TransUnion forecasts the fourth-quarter auto delinquency rate will rise to almost 0.9%. Fourth-quarter rates are typically higher, as consumers divert money to holiday spending. The weak labor market will also continue to weigh on consumers.
Regional banks hold 25% of their assets in commercial real estate
Prices for commercial real estate have already fallen by about 40%, but the problem is that lots of owners are in negative equity now, said Richard LeFrak, president of the LeFrak Organization. Malls are also likely to suffer, as "the new norm is that nobody goes shopping, everybody is saving," LeFrak said, adding that mall vacancy rates run at about 11-12%. Owners don't sell because "the bottom line is there's more debt than there's value," Zell added. However, debt makes up about 80 or 90% of commercial real estate projects in the US and because of the recession, unemployed people "need little retail space," Wilbur Ross, chairman and CEO of WL Ross & Co., said. Owners don't sell because "the bottom line is there's more debt than there's value," Zell added. However, debt makes up about 80 or 90% of commercial real estate projects in the US and because of the recession, unemployed people "need little retail space," Wilbur Ross, chairman and CEO of WL Ross & Co., said. "
I think it's going to be a long, hard struggle even without new construction," Ross said. "I think it is going to be tragic for the equity owners and for some of the lenders." Typical regional banks in the US would have 25% of their assets in commercial property loans. "I think the biggest victims are going to be the regional banks."
Obama's stimulus saves or creates 72 trillion jobs
Ok, so even the government doesn't claim that much, but in another round of "reports", the Congressional Budget Office (CBO ) says between 600,000 and 1.6 million jobs were created. Let's see...that's a margin of error of over 100%, right? The report by the CBO, released yesterday, “leaves no doubt that the economy would be in much worse shape if the recovery act had not been implemented,” said House Education and Labor Committee Chairman George Miller, a California Democrat. “As the Obama administration and Congress continue to explore additional strategies to create jobs and build a foundation for long-term economic growth, it is critical to acknowledge the progress that has already been made.” The White House is convening a “jobs summit” on Dec. 3 to discuss additional measures to reduce an unemployment rate that reached 10.2% in October, the highest level since 1983. More than 15 million Americans are unemployed, with 7 million jobs lost since the recession began in December 2007. The agency estimated the stimulus package increased federal spending by $100 billion while reducing tax revenue by $90 billion through September 2009.
CMBS Delinquencies Grow 504% since ‘08
In October, the delinquent unpaid balance for commercial mortgage-backed securities (CMBS) grew 504% from last year, according to research from Realpoint, which tracks monthly CMBS delinquency trends. The delinquent balance increased to $32.5 billion in October from $31.7 billion the month before. In October 2008, the delinquent unpaid balance for CMBS was only $5.3 billion. At its low in March 2007, the reported delinquent balance was $2.2 billion, according to Realpoint’s report. Four of the five delinquent loan categories experienced an increase in October with only the 60-day delinquent bucket declining. But, despite the drop, the total delinquency balance of 90-plus day, foreclosure and real estate owned (REO) buckets grew for the 23rd straight month as it rose 12% from the month before and 572% from last year. Realpoint anticipates the delinquency percentage for CMBS to increase between 5% and 6% through the Q110. It could approach and surpass 7% through the mid-2010. On the lending side of commercial real estate, Banc Investment Group (BIG) reported its commercial real estate lending index, which measures lending conditions for community banks, dropped 10.6% in Q309. “The Index results from the third quarter indicate that bankers will face tough challenges in managing their balance sheet in coming quarters and need to be pro-active in addressing problem loans,” said Chris Nichols, president and CEO of BIG, the capital markets subsidiary of Pacific Coast Bankers’ Bancshares.
Above Post Written by: Chris Mclaughlin with Short Sale Riches.com
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