The commercial mortgage loans in life insurers’ investment portfolios seem to be performing much better than the loans in banks’ and thrifts’ portfolios, and much better than they performed in the mid-1990s.
A team of analysts in the Chicago office of Fitch Ratings has included commercial mortgage loan performance data in a review of U.S. life insurers’ commercial loan exposure.
Analysts have been worrying for months about the state of the commercial mortgage-backed securities (CMBS) market.
The percentage of loans that are at least 60 days delinquent is about 8% for CMBS asset pools, and also about 8% for commercial mortgage loans held by banks and thrifts.
At the life insurers that Fitch rates, delinquent, foreclosed and restructured mortgage loans account for only about 0.4% of 2010 mortgages, the Fitch analysts report, using data from company financial reports, Fitch databases and Highline Data, a data service that is part of the same company that owns the NU Online News Service.
Total life company commercial mortgage loan delinquencies approached 8% in the early 1990s, and delinquencies stayed over 2% until 1997.
At banks and thrifts, mortgage loan delinquencies exceeded 10% in the early 1990s and did not fall much below 2% until 1999.
During the economic slump that started in 2008, life mortgage loan delinquencies have stayed near 0 as bank, thrift and CMBS delinquencies have soared.
Many large life insurers have mortgage loan deliquency rates below 0.01% of mortgage assets.
Life insurers’ commercial mortgage loan losses could be somewhat higher this year than in 2010, but not much higher, the Fitch analysts say.
“Fitch believes the lower than expected losses have been driven by life insurers’ solid underwriting, flexibility to modify loans, and proactive sales, as well as environmental factors including economic recovery, low interest rates, and financing capacity,” the analysts say.
In some cases, life insurers may be holding troubled mortgage counts down by selling bad loans to investors or non-life affiliates, the analysts say.
“However, Fitch does not believe that the practice has had a material effect on the industry’s reported mortgage performance statistics or regulatory capital requirements,” the analysts say.