Whenever we look at the portfolio totals for a region or for the US I like to look at the pipeline. Meaning 30-89 day late, 90+ day late, Non accrual, and REO. Assets move through these stages of default in that order. Sometimes, obviously, loans are picked off by investors on their way to REO or occasionally loans are paid off but the above is essentially the funnel.

This past reporting period shows that multifamily loans reported as 30-89 days late dropped by a whopping 26.9%. That is a huge percentage considering that these are aggregate numbers from thousands of banks.

Banks booked in an extra 7.8% in MF REO, about $181MM, over the second quarter which shows that there’s a willingness to pull the trigger on some of the more delinquent borrowers. Nonaccrual (non performing, more than 90 days late) loans still stand at more than twice the volume of multifamily REO but as we saw in the residential report these are actually pretty good numbers (if you’re a bank).

Over the last 4 quarters distressed multifamily numbers have been trending down. Over the last two months I have had a couple of subscribers as well as local investors tell me that they are seeing more transactions and that banks are more willing to sell. This evidence is of course anecdotal but combined with the continuously improving reports I think it is safe to say that multifamily is finding it’s way right out of the woods. Numbers point to this being the first property type to truly turnaround.

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Numbers shows that the nation’s banks shed more than 6.4% of their multifamily REO from Q4 2010 to Q1 2011.

While the number of banks reporting multifamily REO remained unchanged at 678, 2% more banks reported non accrual (non performing loans) than last quarter even though the total volume of non performing MF loans was reduced by 2.9% or about $181 million.

All told US banks worked through, wrote down or sold just under a half billion dollars ($494 million) in distressed multifamily including 30-89 day late, 90+ days late or non performing multifamily loans and REO.

Citibank topped the list reporting $710 Million in multi-family REO for the quarter ending March 31st, 2011

A free download of a list of the US banks with the Top 20 Multifamily OREO Balances is now available.

This data is supplied by BankProspector 2.0 a hosted, online, software application designed to accelerate the process of prospecting banks directly for distressed real estate assets. This data is deemed accurate but not guaranteed. All data sourced directly through the FFIEC’s CDR and compiled and analyzed by BankProspector. Current data set does not include banks regulated by the Office of Thrift Supervision.

There is an increasing interest in non-performing loans among our members and prospective members and there is a developing pool of resources surfacing online to help guide investors through the process of how to buy non-performing loans, how to evaluate them, calculate returns etc. At distressedpro.com we’re actively talking with some of the best most credible sources for this information and we’re hopeful that in the not-too-distant future we’ll settle on a partner offering a real, credible, actionable plan or program.

Distressed multifamily totals at US banks generally improved in the final quarter of 2010. With late, non-accrual, and REO totals at (aggregated) their lowest level in more than a year. Some of this reduction could be attributed to effective disposition strategies, some of the assets disappeared with bank closures. Generally non-accrual balances improved significantly though there are still 1,060 banks reporting about $6.25 Billion in multifamily problems.

All told US banks reported $11.5B in multifamily late and non-performing loans and REO.

BankProspector gives members access to real time late or non-performing loan and REO data for more than 7,000 banks. Sign in for a free demo today.

The total volume of distressed multifamily assets at the nation’s banks dropped by $2.23 Billion. The biggest gains were made in the non-accrual column where US banks shed 32% of their troubles. REO and 90+Day Late Loan (and still accruing) totals were both reduced by over 10%.

Loans at the beginning of the default cycle (30-89 days late) increased by 6.2% but with 4.2% fewer institutions reporting the problem.

The coming quarters will tell whether or not this is the beginning of a significant turnaround in the multifamily space. Certainly if you’re watching multifamily CMBS delinquencies you’re aware that this quarter saw a record rate of 17.4%. These conflicting indicators could be the result of a couple of factors. One is, as was the case with commercial real estate report there were surely some multifamily assets that were removed from the reporting cycle after being assumed by the FDIC. We’ll aim to get a handle on just how much over the course of the upcoming quarter.

Something else to consider is the fact that the loan sizes in the CMBS market can be so large that a single delinquency (for example the $2.8B delinquency cited in the above referenced article) throws the curve.

The Multifamily REO Report for Q4 2010 is now available for download

There’s a lot of terminology flying around out there in this field: NPN, POF, “cash-flow notes” and this sort of thing, but what these notes really are is non-accrual (with or without the hyphen). Non performing loans are, ‘non-accrual loans’, those loans or notes that a bank has on its books that are more than 90 days late and for which there is no reasonable expectation that the loan will be repaid according to terms.

Loans go into default for other reasons (technical default) but the only thing anyone is paying attention to today is non-payment and that’s what most of the investors and loan brokers that I’m talking to are looking for. I put together this video with a theoretical mission to prospect banks in Florida with non-performing multifamily loans.

This is pretty rough and dirty so forgive me, but I wanted to get something out to answer the questions I’ve been getting so I didn’t take a lot of time to clean it up. If you have other questions about what you can or can’t do with BankProspector, please ask me here in the comments or send us an email and I’ll be happy to put together any other necessary videos.

Six hundred and sixty three (663) banks are reporting multifamily OREO balances for a total of $2.73B.

Non-performing multifamily loans meanwhile stand at about three times OREO balances or $8.26B spread over 1059 banks indicating more distressed sales in the pipeline.

The total amount of late, non-performing multifamily loans and multifamily OREO at the close of Q3 2010 comes to $13.77B.

The top chart shows clearly that there are a significant number of non-performing loans in the pipeline the full depreciation of which banks have yet to fully realize.

The four quarter trending chart shows that distressed multifamily loans and REO in the US are on the rise and may be for the foreseeable future.

The data presented represents whole loans balances reported by 98% of banks.

Top 25 Multifamily OREO Balances at U.S. Banks

Download the supplement to this report, a list of the US banks with the Top 25 Multifamily OREO balances (bank owned) and the totals for each.

This data is deemed accurate but not guaranteed and carries no warranty of any kind. All data sourced directly through the FFIEC’s CDR and compiled and analyzed by BankProspector. BankProspector is a hosted, online application designed to accelerate the process of prospecting banks directly for distressed real estate assets.

If we look at the hot spots of the situation, Illinois has the most failed banks in 2010, with a total of ten (10) institutions that have gone under this year alone. Florida is a close second with nine (9) bank failures in 2010. According to our research, bank failures have in significant part been due to construction and multifamily distressed assets.

Yesterday, the FDIC announced a torrent of bank closures in Illinois, which caused the state’s bank failure rate to spike to 10. The latest list of bank failures include Wheatland Bank, Peotone Bank and Trust Company, Lincoln Park Savings Bank, New Century Bank, Citizens Bank and Trust Company of Chicago, Broadway Bank, and Amcore Bank National Association. The FDIC is on pace to shatter the failed bank count of 140 set in 2009.

Eleven banks in California reported multifamily loans that were 90 days late for a total of $87,686,000 in late loans, a more than 10-fold jump from the previous quarter. Most of this came from one bank, City National Bank in Los Angeles.

City National Bank has since amended their report having transferred a large portion of this debt to non-accrual status and at the same time booked in just under $30 Million in multifamily REO. The bank’s portfolio is struggling with a non-performing rate that tops 50%, an exceptionally high number. It’s important to note that City National Bank, with total assets topping $20 Billion is reporting more than adequate capital even while it deals with north of $600 Million in troubled real estate.

Only 27 California banks reported multifamily REO. First Regional Bank based in Los Angeles led the pack with more than $23 Million in multifamily REO  and a portfolio with 21% of loans non-current. First Regional reported low capital ratios and was subsequently closed by the FDIC on January 29th, 2010.

East West Bank in Pasadena had the second highest REO figures in California, for the asset class, with $13.3 Million and more than $34 Million in troubled multi-family loans in the pipeline. East West reports healthy capital ratios.

While it is encouraging to see that some banks are starting to take their medicine, it’s plain to see from the numbers that many lenders are refusing to take serious action on their non-performing notes. While California banks reported $81 Million in MF REO, late and non-accrual loans total more than 10X that, or $925 Million.

As 2010 plays out, a lineup of additional banks are set to fail. Many of those that survive will still have to shed massive amounts of distressed real estate. As we can see from the most recent FDIC (Federal Deposit Insurance Corporation) offering (banks closed a year ago) there is a significant lag time in bringing the failed bank’s assets to market.

Residential Real Estate Problems

As expected, residential real estate continued to be the dominant problem facing the nation’s banks in terms of dollar volume of distressed assets. For the first time, distressed loans and residential REO topped $200 Billion, up from $179.6 Billion in the previous quarter. Probably the most disturbing part of this trend is that the biggest increase came in the 90+ Day Late category, which jumped 22% in a single quarter. This suggests that problems are accelerating rather than abating.

Lenders only increased their residential REO balances by 1.6%, while non-accrual jumped 7.7%. Clearly there is a significant backup in processing foreclosures. It’s hard to see a way that this continued surge won’t result in a significant increase in available residential REO, and ultimately, lower home prices. It is important to point out that these figures are based on whole loan totals and not MBS, which encompasses the majority of residential mortgages. It would be reasonable, however, to assume that portfolio and securitized mortgages are experiencing similar trends.

Troubled Multifamily Property

Distressed multifamily balances continue to make up only a small fraction of the sea of bad loans and REO, but this past quarter the asset type saw the biggest increase in problems out of the four asset types that we track. Non-performing multifamily loan balances surged 23.3% last quarter while multifamily REO balances ballooned by 21.2%. So while distressed multifamily opportunities are rapidly increasing, the asset type still only comprises 3% of all real estate portfolio problems for America’s banks, 1,158 banks are reporting non-performing multifamily loans while 655 report multifamily REO. As of Q4 2009 banks are showing only $11.13 Billion in troubled multifamily loans, up from $9.19 Billion in the previous quarter.

Commercial Real Estate Distress

Banks started to book commercial real estate into REO at an increased pace at the end of 2009. Commercial REO balances jumped nearly 21% from the previous quarter. Non-performing (non-accrual) commercial real estate loans bumped up 15.4% while 90 Day Late loans dipped 7%, indicating that some lenders may be moving to take their CRE knocks sooner rather than later. A counter point to this is the fact that while banks are holding a little more than $7 Billion in commercial REO, their non-accrual CRE loans stand at $37.7 Billion, representing more than a 5-fold increase. Expect to see some of this move through the pipeline over the course of the year.

Construction Loans and Failed Projects

Construction loans make up 25% of our bank’s problems with a total bill of $89 Billion. This number only increased .4%. Construction REO jumped 14.4%, but late and non-accrual construction loans dropped .3% and 17.8% respectively. You could say, it would seem, that the one bright spot is that construction loan problems are abating. I’m hesitant to declare that, however, due to the fact that banks continue to whistle past the graveyard with non-performing construction loans.

Banks have made almost no progress in 3 quarters in reducing the level of construction loan non-accrual. Construction loans are usually fairly short term loans and banks haven’t been making them for a while, this accounts for the dwindling numbers. Not making construction loans is a double-edged sword, however, because while banks aren’t lending they have huge volumes of failed construction projects for sale. If developers can’t borrow, how can they buy?

Construction has been the leading cause of bank failures over the last 6 months. Expect to see many more who are failing to take meaningful action towards recovery on these projects. A lot of the bad construction loans are broken or failed condo projects, busted sub-divisions and the like. Well positioned developers could see a flood of opportunity this year.

Look for individual state and asset type reports over the next two weeks as we dive into BankProspector and pull out the data. Join our email newsletter, or, start working on your own and sign up for BankProspector to access the distressed real estate data for each US bank directly.

Community & Southern Bank paid the FDIC a 1.25 percent premium to assume all of the deposits of the failed Bank. The loss–share transaction between the FDIC and Community & Southern Bank is estimated to be worth approximately $607.4 million. The failure of First National Bank of Georgia represents the first bank failure in Georgia thus far in 2010. The cost to the Deposit Insurance Fund (DIF) is estimated at $260.4 million.

Distressed Pro’s BankProspector shows that First National Bank reported capital adequacy of 1% with nonaccrual real estate loans of $92 million, and an OREO balance of over $42 million. First National Bank of Georgia carried noncurrent distressed real estate loans at approximately 50% and 24% in their construction and multifamily loan portfolios respectively.