Advance 3Q Bank Delinquencies
November 5, 2010
Final figures for the third quarter 2010 are not due out for a few weeks (late November), but based on earnings reports and call report filings from many smaller banks, Foresight Analytics offers its advance estimates of what final 3Q 2010 real estate and business loan delinquency results will be. Note: these are preliminary estimates, not the final results.
Residential Mortgages (First-Lien Single Family Mortgages)
- Total delinquencies rose slightly, to a preliminary estimate of 13.3% during the third quarter, up from 13.2% in the second quarter and from 11.8% a year ago.
- Serious delinquencies (nonaccrual rates) rose by 0.2%, from 5.2% to 5.4% during the third quarter.
- The uptick in the delinquency rate comes after a decline in the second quarter, and amid renewed softness in home prices. Moreover, problems with the foreclosure process have emerged, which will likely slow the recovery in the residential market.
- Despite the uptick in the third quarter, delinquency rates are still below the 1Q peak of 14%. Barring a return to recession, the 1Q rate will likely prove to have been the peak in delinquencies.
- Total delinquencies rose during the third quarter, to an estimated 19.5%. The increase follows a decline in the second quarter, and underscores the difficulties that remain in the market, with major value declines and unavailability of financing as major trends impacting the market.
- The nonaccrual rate deteriorated during the third quarter, rising to 14.9%, a 0.2% increase from the second quarter.
- The overall loan balance outstanding declined again in 3Q. Some new loans are being originated, on conservative terms, but have not yet been enough to outpace the contraction in the market. The decline in credit availability, though perhaps not a primary driver in itself, is probably contributing to distress in this segment.
- The total delinquency rate rose to an estimated 5.6%, up from 5.4% in 2Q. This represents a reversal from the decline seen in 2Q.
- The nonaccrual rate increased during 3Q, reaching an estimated 4.0%. This is a new peak for the nonaccrual rate.
Advance 3Q 2010 Delinquency Rate Estimates
- The uptick in the delinquency rate is especially notable in the commercial mortgage space, as this CRE segment has not suffered from the same lack of liquidity as construction lending, or at least not nearly to the same degree.
- As previously noted, underwater mortgages combined with record amounts of maturing loans will be weighing on the market in coming quarters. If the tepid economic recovery manages to heat up, and real estate values increase, some of the pressure on the segment will be relieved, but we expect distress to be an ongoing theme for an extended period.
Commercial & Industrial Loans
- The total delinquency rate fell to 3.8%, down from 4.0% in 2Q, and the downward trend that began in 4Q 2009.
- Despite the stabilization on the delinquency front, the lack of credit is very apparent in the C&I segment. Loans outstanding have been declining since 3Q 2008.
- Data for 3Q indicates a slower pace of contraction, so it is possible that credit availability will expand in 2011.
See below for a discussion of our previous estimates’ accuracy.
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Foresight Analytics is a division of Trepp that provides analysis and forecasting for the real estate and banking industries. The company focuses on commercial
and residential real estate market fundamentals and bank lending. Clients are mainly institutional investors, lenders and developers.
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access to the most in-depth information for monitoring, pricing and analyzing commercial real estate loans. Trepp is a wholly owned subsidiary of DMG Information, which is a part of the Daily Mail Group, the largest media company in Britain.
This report is based on information we consider to be reliable, but we cannot guarantee its accuracy. No warranty — express or implied — is given, either with regards to the accuracy, completeness or usefulness of current and historical data, or with regards to any forecasts contained herein. This is not a complete analysis of all material facts regarding any company or industry. Unless otherwise noted, all forecasts are by Foresight Analytics, a division of Trepp. The views expressed in this report reflect our judgment at this time and are subject to change without notice.
Advance 3Q 2010 Delinquency Rate Estimates
Accuracy of Previous Estimates Residential Mortgages
- Our estimates of the total delinquency rate overshot the actual rate by 100 basis points in 2Q, mainly the result of overestimating shorter-term delinquencies.
- The error on nonaccrual rate estimates was +10 basis points in 2Q.
- Our estimates have been accurate, especially given the volatility in the figures.
- The spread between total estimated and actual delinquency was 0 bp in 2Q.
- We underestimated nonaccrual loans in 2Q, by 10 basis points.
- We overestimated the total delinquency rate by +30 bp in 2Q, by overestimating shorter-term delinquencies.
- Our estimate of the nonaccrual rate was accurate, with a 0 bp spread between estimated and actual.
C & I Loans
- Our estimate of the total delinquency and nonaccrual rates were accurate in 2Q, with a 0 bp spread between estimated and actual.
Residential Mortgages: the data shown here is for first-lien mortgages only, i.e., excluding second mortgages and home equity loans.
Construction Loans: loans for the construction of any structure (residential or commercial), including loans for land acquisition.
Commercial Mortgages: loans secured by non-residential commercial properties, including both owner-occupied and incomeproducing properties.
Commercial & Industrial: loans to businesses, typically unsecured and separate from commercial mortgage lending.
Delinquencies 30-89 Days Past Due: loans that are at least 30 days but less than 89 days past due, and still accruing interest.
90+ Days Past Due: loans that are 90 or more days past due and still accruing interest.
Nonaccrual: past due loans on which the lender has stopped accruing interest because full repayment is doubtful.
Total: all of the above categories combined.
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