Commercial mortgages placed into special servicing grew last year, but default and foreclosure dollar volume fell as legacy loan resolutions outpaced newly distressed loans, according to Fitch Ratings.
The total balance of loans in special servicing, both mortgages backing securitizations as well as those not securitized, grew by $108.4 billion or 11% over 2017 to $1.4 trillion. Most of this total included performing mortgages the servicer sent to the special servicer.
About $9.8 billion of mortgages backing CMBS finished the year in active special servicing (defined as defaulted loans), down 31% from $14.2 billion at the end of 2017. Only 76 loans, with a total balance of $1.1 billion, were in default at the end of last year.
Of the defaulted loans that were originated after 2012, 68% were 60 days or more late on their payment and 16% were in foreclosure, Fitch said.
In addition, there was another $9.2 billion of CMBS loans that are now real estate owned, a 4% decrease in dollar volume. By units, there was a 4% increase in REO loans to 606, while the number of active specially serviced loans fell by 33% to 550.
“Servicers are making progress resolving loans, however additional loans are entering REO. Fitch believes this is partially attributable to legacy CMBS maturity defaults experiencing foreclosure,” the ratings agency said in a report.
The special servicer total included $306 billion of multifamily loans that are being handled by Fannie Mae, an increase of 10% from 2017. There are also $58 billion of multifamily loans special serviced by Freddie Mac, down 4% from the prior year.
Other than Fannie Mae, the four special servicers managing the largest portfolios are Midland Loan Services (a subsidiary of PNC Bank), $193.5 billion, up 8%; Wells Fargo, $136.5 billion, up 5%; KeyBank, $98.63 billion, up 36%; and Rialto Capital, $98.58 billion, up 15%.
The growth in CMBS special servicing was attributed to an increase in third-party assignments, while the increase in loans that were not securitized was a result of the addition of balance sheet, general account and agency-owned mortgages, Fitch said. Loans that were not securitized made up 26% of special servicers’ portfolios on Dec. 31, 2018, up from 4% one year prior.