Commercial and multifamily mortgage delinquencies increased in the first quarter of 2023, according to a new report from the Mortgage Bankers Association. “Ongoing stress caused by higher interest rates, uncertainty around property values, and questions about fundamentals in some property markets are beginning to show up in commercial mortgage delinquency rates,” said Jamie Woodwell, MBA’s head of commercial real estate research. Commercial real estate was hit hard by the pandemic, with fewer people returning to offices and spending money — eating lunch, getting their nails done, using dry cleaners — in those corridors. Over the past 14 months the Federal Reserve has hiked rates 10 times, pushing the cost of borrowing ever higher. Together with tightening credit, as a result of bank failures this spring, commercial and multifamily companies are facing headwinds. “Delinquency rates increased for every major capital source during the first quarter, foreshadowing additional strains that are likely to work their way through the system,” Woodwell said. The quarterly analysis looks at delinquency rates for five of the largest investor groups: FDIC-insured banks and thrifts, commercial mortgage-backed securities, life insurance companies, and Fannie Mae and Freddie Mac. Together, these groups hold more than 80% of commercial and multifamily mortgage debt. MBA’s analysis incorporates the measures used by each individual investor group to track the performance of their loans. Because each investor group tracks delinquencies in its own way — some include loans with payments 30-days late, some 60-days, some 90-days — delinquency rates are not comparable from one group to another. For example, Fannie Mae reports loans that are in a forbearance agreement as delinquent, while Freddie Mac excludes those loans if the borrower is in compliance with the forbearance agreement. Although the groups’ definitions of delinquency vary, delinquency rates for each group at the end of the first quarter of 2023 were higher than at the end of 2022. Banks and thrifts had a delinquency rate of 0.58%, an increase of 0.13 percentage points from the fourth quarter of 2022. Life company portfolios had a rate of 0.21%, up 0.10 percentage points from the end of last year. Fannie Mae had a rate of 0.35%, an increase of 0.11 percentage points from the fourth quarter of 2022. Freddie Mac had a delinquency rate of 0.13%, an increase of 0.01 percentage points from the fourth quarter of 2022. Commercial mortgage-backed securities had a delinquency rate of 3%, an increase of 0.10 percentage points from the end of 2022. Construction and development loans are generally not included in the numbers presented in the MBA’s report but are included in many regulatory definitions of ‘commercial real estate’ despite the fact they are often backed by single-family residential development projects rather than by other income-producing properties. The FDIC delinquency rates for bank and thrift held mortgages reported here do include loans backed by owner-occupied commercial properties.