Delinquencies on commercial mortgages bundled and sold as bonds rose 51 basis points in July, the largest increase in more than twelve months, to a record 9.88%. The news fuels fears that the economic recovery has flat-lined, or even regressed, as May and June both saw late payments decline.
More borrowers began falling behind on their payments as banks were selling $3 billion in commercial mortgage-backed securities last month at their highest yields since November 2009. Adding to the problem, Standard & Poor’s (NYSE:MHP) withdrew rankings on new deals last week, forcing Goldman Sachs (NYSE:GS) and Citigroup (NYSE:C) to sink a $1.5 billion deal they’d already placed with investors. Lenders stand to lose hundreds of millions of dollars as commercial-mortgage bond prices fall.
Now banks are pulling back from packaging and selling commercial mortgages. JPMorgan (NYSE:JPM) now expects to sell between $30 billion and $35 billion in bonds this year, down from projections in November of $45 billion. However, Wall Street lenders have already sold $22 billion in commercial-mortgage bonds this year, compared to just $11.5 billion in 2010.