Analysis: Lenders Recovering 60 Percent on Defaulted Mortgages

Lenders are recovering approximately 60 percent of the outstanding balances on defaulted commercial real estate loans, according to an analysis conducted by Real Capital Analytics (RCA).
RCA's study looked at 145 defaulted loans with outstanding balances totaling $3.2 billion. The researchers determined that the mortgage originators had received $1.9 billion in gross proceeds from the liquidation of the loans.
(RCA's recovery rate reflects the gross proceeds recovered by a lender after a mortgage has defaulted, and it does not include fees and costs associated with the transaction.)
RCA noted, however, that recovery rates varied dramatically based upon the purpose of the loan. For example, mortgages on development properties yet to be completed brought in slightly more than 30 percent of their balances. Acquisition and refinancing loans, meanwhile, had a recovery rate of nearly 70 percent.
RCA's statistics show that loans in default, foreclosure or bankruptcy currently total roughly $130 billion. "To date in 2009, lenders have taken control and forced the sale of mortgages totaling $9.5 billion, but in the vast majority of troubled situations, a workout is still ongoing or the loan has simply been extended or modified and remains on the lender's books," RCA said.
RCA pointed out that the higher the percentage of the loan relative to the underlying value of the property at the time of origination, the lower the recovery rate. For instance, a loan for 50 percent of a property's value typically yielded 75 percent of its balance, while lenders recovered 57 percent of the outstanding balance on loans of 100 percent or more of the property's value.
Among property types, office buildings have shown the lowest recovery rate, 53 percent, according to RCA.