Recovery for U.S. Bank Loan Delinquencies Stalls: Trepp

The recovery in delinquency rates that began in the second quarter of 2010 appears to have stalled, according to the research firm ""Trepp LLC"":http://www.trepp.com, with delinquency rates for the major real estate loan types declining only slightly in some categories and increasing in others during the first three months of this year.

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Final figures for the first quarter of 2011 detailing loan delinquency trends are not due out from federal banking regulators for a few weeks, but based on earnings reports and call report filings from many smaller banks, Trepp offers its preliminary estimates of what can be expected.

Among first-lien mortgages in the residential single-family sector, the company’s analysts say total delinquencies â€" which include 30-plus days past due and nonaccruals â€" appear poised to edge slightly lower.

Their preliminary forecast is 12.7 percent for the first quarter, down from 12.8 percent in the fourth quarter and 13.5 percent a year ago. Serious delinquencies in the first-lien, single-family loan category are expected to remain flat from the previous three-month period at 4.8 percent.

""The slow rate of improvement reflects the still‐high volume of foreclosures and weak price trends that still plague the market,"" Trepp said in its report. ""Recovery in

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the market is looking like it will take a protracted period of time, stretching well beyond 2011.""

Commercial real estate loans are expected to post a similar nominal decline. For commercial mortgages, the total delinquency rate is estimated to fall to 5.3 percent, down from 5.4 percent in Q4. Trepp notes that results for individual banks vary, with some banks experiencing increases and others declines in delinquent amounts.

In the commercial mortgage loan category, Trepp says the nonaccrual rate seems set to increase when final first-quarter numbers are out, reaching an estimated 4.0 percent. That rate would be the highest it has been in the current cycle, according to the firm’s analysts.

“The very slight decline in the overall delinquency rate highlights the lackluster nature of the economic recovery so far,” Trepp said. “We continue to believe that significant declines in operating income have impacted ability to make debt service for many borrowers, and large declines from the peak values in 2007 will remain an issue for many properties.”

Total delinquencies related to construction lending appear to be on the rise for the first quarter. Trepp’s estimated delinquency rate in this category is 18.3 percent, representing a reversal of the trend of falling delinquencies that began in the second quarter of 2010.

The nonaccrual rate for construction loans is on track to worsen for the first quarter, Trepp said, rising to 14.5 percent, an increase of half a percentage point from the fourth quarter. The company notes that lingering problem loans have combined with declining outstanding loan balances to produce higher delinquency rates in the construction sector.

Matt Anderson, managing director at Trepp, says the poor showing in delinquency stats expected across the board for the first quarter “underscores the fact that markets have not yet truly recovered and also reflects anemic growth for both residential and commercial real estate.”