The mortgages – as we have seen in the current wave of defaults, including those where the landlord has just walked away from the property – are often variable-rate. The top-rated slices have an A-rating or AA-rating, solidly investment grade (here’s my cheat sheet on bond credit ratings by rating agency), with the idea that the lowest rated slices will absorb any losses while the top-rated slices remain unscathed. So they package them, sometimes just one big mortgage, but often several or many mortgages, into a pool of mortgages that then gets structured into different slices that investors buy, with the junk-rated slices taking the first losses in return for slightly higher yields. For banks, these mortgages might be too risky to keep on their books. They allow lenders, such as banks, to sell high-risk commercial mortgages during times of low interest rates to yield-chasing investors, such as bond funds, life insurers, etc. Including the loans that were past their maturity date but were still paying interest, the delinquency rate would have risen to 4.66%.ĬMBS have real advantages. As long as landlords are making interest payments, Trepp doesn’t consider the mortgages delinquent, but tracks mortgages that are past their maturity date separately.įor example, Trepp’s overall delinquency rate for all types of CMBS rose to 3.90% in June. This includes the interest-only mortgages, when the whole amount is due at maturity, and mortgages with a balloon payment at maturity. This delinquency rate does not include properties that are still paying interest but are past due on paying off the mortgage on maturity date. Trepp considers a loan “delinquent” after the penalty-free 30-day grace period ends and the borrower still hasn’t caught up with the interest payment.
So this is going to be interesting because we’re just at the beginning of a massive structural change – not a temporary blip – that is impacting office towers turns out, companies have figured out they won’t ever need this vast amount of vacant office space.
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