In the wake of the housing market collapse, institutions that were once given some leniency when it came to mortgage delinquency are starting to get foreclosed on, Reuters reports.
A wave of church foreclosures has recently been triggered across the country, says the news source. Real estate data shows that since 2010, an estimated 270 churches have been foreclosed on. Meanwhile, in 2011, nearly 140 churches were sold by their lenders after defaulting on their loans.
"A lot of these loans were given when the properties were evaluated at a certain level in 2005 or 2006," Ziegler religious and education finance managing director Scott Rolfs told Reuters. "Banks have had to reappraise the value of these properties, whether it's a church or a commercial office building. Values have gone down, so the loans cannot continue in the same form."
However, since churches qualify as commercial property, the foreclosure and default process tends to differ from that of residential mortgage loans. Churches often get loans that come to maturity within five years, the source reports.
At this time, the institutions usually refinance, extending the loan at a more affordable rate, and in turn easing monthly payments. However, in the current market, lenders have tightened the standards of this process, making refinancing more difficult.
Meanwhile, even though a greater number of churches are getting foreclosed on, overall commercial delinquencies were down during the fourth quarter of 2011.
"Commercial and multifamily mortgage delinquency rates continue to stabilize and improve in parallel with the broader economy," said Mortgage Bankers Association vice president of commercial real estate research Jamie Woodwell. "And counter to what many have predicted, commercial mortgages have proved to be neither 'the next shoe to drop' nor a 'ticking time bomb' for the banking sector or the economy as a whole."
The industry group's report showed that the rate at which commercial borrowers were 60 days or more delinquent dipped 0.02 percent to a total of 0.17 percent, while borrowers who were 90 days delinquent fell 0.2 percent to 3.55 percent.
As fewer commercial borrowers run into financial trouble, it could result in loosened standards and credit more easily available to builders and developers. Should this occur, the the commercial real estate industry could see further growth this year.