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Moody’s: Loan relief reduces CMBS loan delinquencies for now

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Lenders’ loan modifications have temporarily reduced the delinquency rate of loans in CMBS deals for the second month in a row, according to Moody’s Investors Service, but the temporary nature remains cause for concern.

“Forbearance and other temporary relief and loan modifications drove the second consecutive delinquency rate decrease after three months of historically large increases,” said Moody’s in its monthly CMBS-US report published Oct. 15.

Moody’s notes that its CMBS conduit loan Delinquency Tracker (DQT) fell to 7.51% in September from 7.73% the month before, which still represents the fourth highest delinquency rate since November 2013.

The business lockdowns imposed by states in the first few months of the pandemic hit retail and hotel properties especially hard. While states have gradually sought to open their economies, those industries have continued to operate at a fraction of their capacity. Their loans made up 79.0% of those delinquent 60 days or more.

In addition to loan forbearance and modifications, businesses have benefitted from federal stimulus that has enabled them to continue paying employees. That funding, however, has expired and prospects for a second round before the presidential election have dimmed, just as Covid-19 infection rates have begun to rise again.

Moody’s notes that CMBS conduit loans becoming 60 to 89 days delinquent fell slightly in September from the month before, while those with shorter late payments or payments not yet received but still within their grace periods also fell slightly or remained the same. The rating agency says the decreasing share of loans less than 60 days delinquent potentially signals that the most stressed assets from the initial pandemic lockdown “have been completely realized.”

Moody’s adds, however, that “this is highly contingent upon various factors such as debt relief agreements, government support, and successful resolution to the health crisis where regional economies are able to reopen fully and safely.”

Retail and hotel properties made up a majority of late payments, respectively 33.3% and 32.7%.

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