Weekly Wrap: S&P lowers default-rate forecast

Commercial and multifamily loan performance in March was its best in nearly one year, but there was a slight month-to-month uptick in payments missed in the short-term, the Mortgage Bankers Association reported.

A 95% share of commercial and multifamily loans as measured by balance due were current on their payments in March, up from 94.8% in February, according to the MBA's CREF Loan Performance Survey.

"Commercial and multifamily mortgage delinquencies fell for the third straight month in March and are now at their lowest level since the pandemic disrupted the economy and commercial real estate a year ago," Jamie Woodwell, the MBA's vice president of commercial real estate research, said in a press release. "There continues to be significant differences in loan performance by property type, with higher delinquencies rates for lodging- and retail-backed mortgages."

The largest share of commercial mortgages in March was those without a payment being made in 90 days or more, or are now real estate owned, at 3.2%. This was down from 3.5% in February. Last August, the first month for which the MBA provided this data, a 2.9% share of loans that had missed at least 3 months of payments.

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Brad Finkelstein

The U.K.’s efforts to disentangle itself from sterling Libor by year-end just went up a gear.

Starting Thursday, firms should stop issuing new loans, bonds and securitizations tied to the discredited benchmark, according to the Bank of England. It’s ramped up the pressure in recent days, warning bankers that continued use is a risk for business and could cost them their bonuses.

The process will be closely watched in the U.S. where firms have until year-end at the very latest to cease issuing any new Libor products. Britain’s cutoff will offer a test case about how to force out a rate that still underpins hundreds of trillions of dollars of assets around the world.

“U.S. regulators have been relatively hands-off compared to the U.K.,” said Blake Gwinn, head of U.S. front-end rates strategy at NatWest Markets. “Someone is going to have to get more forceful. When a regulator says, ‘We are going to need the names of individuals responsible and to see plans or else,’ that tends to get things moving faster.”

In a coordinated move, from Thursday the BOE will begin reducing the amount it lends to banks using Libor-linked collateral in some programs, an effort to make it less appealing.

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Bloomberg

The Federal Reserve-backed Alternative Reference Rates Committee (ARRC) is promoting the use of a 30-day average SOFR rate in pricing various securitizations, keeping in step with U.S. regulatory efforts to push markets away from using U.S. dollar Libor benchmarks in new floating-rate debt products.

In a 12-page paper released Monday via the New York Federal Reserve, the industry working group outlined how 30-day average SOFR (Secured Overnight Financing Rate) already “incorporates several beneficial attributes” which make it a “preferable alternative to U.S. dollar…Libor for certain securitized products,” including those bundling mortgages, student loans and commercial loans, the paper stated.

The paper arrives during a time when U.S. regulators are pressuring banks to cease underwriting floating-rate debt tied to Libor. While the most widely used USD Libor rates will still be published for another two years, that period is intended for issuers to pay down legacy ABS, MBS and structured-finance deals that lack a fallback benchmark rate.

“The ARRC has adamantly stressed that now is the time for market participants to stop issuing new LIBOR-based products, including securitized products,” said Tom Wipf, ARRC Chairman and Vice Chairman of Institutional Securities at Morgan Stanley, according to an ARRC press release.

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Glen Fest