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Banks recover 60% of US mortgage values after liquidation

In 2009 to date, 145 defaulted commercial mortgages have been liquidated by banks. Those sales generated $1.9bn in proceeds compared to their original balance of $3.2bn. International banks are leading the recovery efforts.

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Lenders have recouped 60 percent of the value of the US mortgages they have liquidated to date in 2009 – generating $1.9 billion in proceeds compared to original face values of $3.2 billion.

Research by data provider Real Capital Analytics reveals the recovery rate for development projects not yet complete is one of the worst, with just 32 percent of loan values recovered. Developable land follows suit, with a recovery rate of 45 percent.

Surprisingly, retail loans are the best performing sector, with lenders able to recoup on average 72 percent of the original value.  RCA noted the retail sector had seen relatively few resolutions “compared to the huge amount of properties currently in default”.

The New York-based firm stressed though the purpose of the loan was

Development-oriented loans such as land and construction, condo conversion and redevelopment loans have a far lower rate of 48 percent, than acquisition or refinancing loans, which have an recovery rate of 66 percent.
far more important than property type in determining recovery rates. “Development-oriented loans such as land and construction, condo conversion and redevelopment loans have a far lower rate of 48 percent, than acquisition or refinancing loans, which have an recovery rate of 66 percent.”

In terms of location, loans secured by properties in the Los Angeles and New York metropolitan areas have also proved the easiest from which to recover capital, with recovery rates of 72 percent and 70 percent respectively. Detroit, Tampa and Phoenix were the worst, with rates of around 45 percent, 46 percent and 53 percent.

International lenders though are the ones leading the charge in recovering capital from the liquidation process, with a recovery rate of 76 percent overall – and 89 percent for acquisition and refinancing loans. RCA explained the impressive figures could be owing to the fact that international lenders have traditionally financed only the better assets in primary markets.

National US banks were able to recoup 64 percent of all mortgage values from liquidation, with a 74 percent recovery rate for acquisition and refinancing loans. Regional and local banks though experienced the lowest overall recovery rate from their troubled commercial mortgages at around 56 percent, most probably owing to their greater exposure to development projects and developable land.

The least surprising finding from the RCA report though was the fact that the higher the loan-to-value at origination – the lower the amount recovered. Mortgages with an original LTV of 50 percent saw a 75 percent recovery rate, compared to loans that had LTVs of 100 percent of more at origination, which had a recovery rate of 57 percent.