Declining Delinquencies

Source: Standard & Poor's,, Deegant Pandya, 212-438-1289

Source: Standard & Poor’s,, Deegant Pandya, 212-438-1289

Standard & Poor’s Ratings Services forecasts a 50 to 100 basis point decline in the U.S. commercial mortgage-backed securities delinquency rate this year, based on historical and distressed loan data, vintage characteristics, maturity schedules and regression testing against the national unemployment rate. Given the 6.69 percent Standard & Poor’s
delinquency rate in December 2014 (down 123 basis points year over year), we expect CMBS delinquency to be in the 5.6 to 6.1 percent range by the end of 2015.

We derived a forward-looking delinquency rate from time series analysis calculations and the loans maturing in calendar year 2015. The analysis considered historical distressed loan data and maturity schedules to project an expected delinquency rate for December 2015. Vintage years 2006 and 2007 make up a significant percentage of the outstanding loan base at around 26 and 33 percent, respectively. Based on trend analysis, we expect delinquency rates will continue to decline in 2015 for both the 2006 and 2007 vintages and flatten out around 6 and 10 percent, respectively. Based on vintage year, we project delinquencies in 2015 to be around 6.1 percent.

In our regression testing, we found strong positive correlation between the delinquency by property type and the U.S. national unemployment rate. The unemployment rate showed characteristics of a leading indicator for the retail and office sector delinquencies aggregating to around 60 percent of the loans within Standard & Poor’s-rated transactions. The steady decline in unemployment over the past few years, along with a Federal Reserve-projected unemployment rate in the range of 5.4 to 5.6 percent for 2015, drove the lower-bound forecasted delinquency rate of 5.6 percent. We further validated the correlation between delinquency and unemployment rates by applying the same analysis to the 2014 delinquency rate and Fed unemployment data. The results were within 10 basis points of the Standard & Poor’s calculated delinquency rate of 6.69 percent for last year.

For the full report titled “U.S. CMBS Delinquency Rate Should Continue Declining in Line with Unemployment in 2015,” please visit S&P Ratings’ website at