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Smaller Towns at Highest CMBS Delinquency Risk

Moody's issues study findings

December 17, 2002

By MortgageDaily.com staff

Moody's Investors Service has targeted the area most likely to have delinquencies on commercial building mortgages, according to a study.

The report on real estate delinquencies in commercial mortgage-backed securities (CMBS) found that the smaller the town, the greater the chance for a commercial building's mortgage to go delinquent. The finding is based on all commercial property types.

"One of the key findings from Moody's study was that commercial mortgages underlying CMBS deals had more than five times as much chance of becoming delinquent in towns that were too small to be designated a Metropolitan Statistical Area [MSA] by the Bureau of the Census," or towns less than about 50,000 in population, said Sally Gordon, Moody's analyst and author of the report. "This pattern prevails across all property types."

The "CMBS Delinquency Report Card: From A to Incomplete" also found that, conversely, delinquencies for all property types usually are lowest in larger cities.

The top ten most populous cities in the report had a delinquency rate of 0.7%, and towns with less than 50,000 in population had a delinquency rate of 3.8% -- more than five times greater, Gordon said.

But while the delinquency rate was higher in smaller towns, the value of the delinquencies were smaller: $263.2 million compared with $537.9 million in major cities.

The study also found the top five states by percentage with the highest CMBS loan delinquency. Tennessee tops the list, with 5.6% of loans or $130.7 million in loans running late. Next is Iowa, with 5.3% or $24.5 million; Louisiana, with 4.5% or $90.5 million; Oregon, with 4.1% or $73.6 million; Ohio, with 3.7% or $175.6 million; and New Mexico at No. 5 with 3.5% or $24.5 million.

By dollar value, the top five delinquent states were found to be Florida, with $477.3 million late loans or 3.2%; Texas, with $305.9 million or 1.7%; Ohio, with $175.6 million or 3.7%; California, with $170.8 million or 0.4%; and Illinois, with $138 million or 2%.

"Specifically, all of the Heartland and most of the South are marked as under-performing," Gordon said. In Western states, Texas and Arizona, New Mexico, Utah, and Oregon also are over-represented among delinquencies.

In addition to the delinquency findings in Moody's study, mortgage originations for commercial properties also were down during the third quarter, according to a survey by the Mortgage Banker's Association of America. Multifamily properties took the biggest hit.

In addition to commercial building mortgage delinquency, the report also introduced Moody's new real estate delinquency index.

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