Small balance loans are in pools which typically have loans ranging in size from $150,000 to $15 million. Though small balance transactions account for less than one percent of all loans in the Fitch-rated universe, they comprise 10.8% of all delinquencies. Of all small balance loans tracked in the Index, 5.42% are currently delinquent. This compares to a delinquency rate of 0.38% for all traditional commercial loans rated by Fitch.
As Fitch has previously noted, a high concentration of delinquencies within the index (15.4%) corresponds to transactions issued in 1998, many of which contain a large percentage of loans with 10-year terms. Of all loans within the 1998 vintage, 3.9% are delinquent. In July, approximately 10% of all delinquent loans were classified as non-performing matured.
Currently, the 2006 vintage contributes the highest dollar balance of loan delinquencies within the Index, at $599.6 million (24.9%). However, that vintage continues to perform as expected, with an individual loan delinquency index of 0.35% recorded for 2006 transactions. Similarly, delinquencies from deals issued in 2007 comprise 12.5% of all delinquencies in the Index, due in part to that year's record issuance. Of all loans issued in 2007 transactions, 0.19% are delinquent.
The presence of small balance loans contributes nine basis points to the individual loan delinquency index corresponding to the 2006 vintage. Removal of all small balance loans issued that year would bring the vintage's loan delinquency rate to 0.26% from 0.35%. Making a similar adjustment to the 2007 vintage would bring that year's individual loan delinquency index four basis points lower to 0.15%.
Significant differences in origination, collateral, and performance exist across small balance transactions; however, some generalizations can be made. Loans are generally made to individual borrowers or small businesses with less commercial real estate experience than is typical of most traditional CMBS borrowers. Small balance underwriting often utilizes FICO scores as a measure of creditworthiness of the borrower, compared to CMBS underwriting, which relies more heavily on property cash flow as support for the debt service. Many small balance loans are collateralized by older properties with deferred maintenance and few if any structural reserves. Out of the 478 transactions in the index, sixteen are small balance transactions issued between 1999 and 2007 totaling approximately $4.8 billion.
The seasoned delinquency index, which omits transactions with less than one year of seasoning, rose by one basis point to end the month at 0.48%. Six transactions totaling $22.0 billion became newly seasoned. Currently there are four delinquent loans totaling $62.7 million which correspond to the newly seasoned transactions.
