Credit

Commercial real estate portfolios have held up better than expected during the pandemic. But rising delinquencies and fears of a delayed economic recovery are renewing questions about credit quality.

Hospitality sector credits are coming out of forbearance just as coronavirus cases surge. Restructurings and charge-offs could mount unless vaccine distribution happens quickly enough to jump-start travel by mid-2021.

Lenders also increased jumbo product availability as well as rolling out new SOFR-indexed ARMs.

Lenders pushed back against the notion that city dwellers' pandemic-driven flight to suburbia would hurt them. They say fewer landlords have sought deferrals as vacancy rates remain low and rent collections have stabilized.

The subprime lender cited low odds that Washington will deliver further economic relief, and the fact that $1.5 billion of loans whose deferral period expired are now more than 30 days behind.

Credit portfolio manager’s outlook on corporate borrower defaults and spreads on their loans, while still gloomy, has improved somewhat as the pandemic continues.

Commercial real estate loans are vulnerable as financial assistance for tenants winds down and might not be fully renewed. Late rent payments could rise, leading lenders to press landlords to pay up.

More consumer and commercial borrowers are paying their loans, increasing the likelihood that charge-offs will be manageable for banks despite the ongoing pandemic.

Conditions have improved for the first time since November.

Community bank earnings are usually easy to understand, but loan deferrals and modifications as well as the complexities of the Paycheck Protection Program are skewing financial statements.