The Second Wave

“In describing the increase in CMBS loans going into special servicing, Fitch Ratings uses the term "rising tide," and that phrase could also apply to the Q1 jump in CMBS delinquencies.”

This is the opening line of an article written by Paul Bubny, an author and expert on Commercial finance. In the article he goes on to describe the coming wave of foreclosures in the Commercial Mortgage Backed Securities market.

Delinquency rates are as high as 3% in multi-family unit loans and the increase in the overall rate of delinquency has increased .62% over this same quarter last year. While loans that are late are expected to increase over the next two years, a large number of non-performing assets are expected to go into foreclosure in the near term.

The reason for the rising number of loan defaults is because of the tight credit market. As more loans mature between now and 2012, there will be more and more foreclosures.

The only solution to this problem is to somehow loosen current stringent credit standards. The good news in all of this is that the Feds realize this problem is coming. Unlike the housing credit crunch, there is no illusion that the economy is strong enough to withstand the coming onslaught.

Everybody is aware of the problem and plans are being made to deal with it. We’ll watch and hope that a viable solution is in place soon.