Commercial/Multifamily Mortgage Debt Declines in Third Quarter

Commercial/multifamily mortgage debt, declined slightlyrnduring the third quarter according to data released on Thursday by the MortgagernBankers Association (MBA).  Thernconclusion was based on MBA's analysis of the Federal Reserve Board Flow of Fundsrndata.

During the third quarter the amount of commercial/multifamily debt outstandingrndeclined by $28 billion or 0.8 percent torna total of $3.43 trillion.  Thernmultifamily mortgage debt portion of the total declined $1 billion or 0.1 percent to $912rnbillion.

The bulk of the commercial/multifamily debt is held byrncommercial banks, which have a 45 percent share or $1.53 billion on their books.  The MBA notes, however, that among the holdingsrnof the top 10 commercial real estate bank lenders 48 percent of these mortgagesrnare actually real estate secured loans related to owner-occupied properties.  In these loans it is the business'  income rather than rents that provide thernsource of mortgage payments.  Thisrnstructure is the force that drove the underwriting, pricing, and performance ofrnthe loans.

CMBS, CDO, and other ABS issuers are the second largestrnholders of commercial/multifamily debt with $709 billion of the total, a 21rnpercent share.  Life insurance companiesrnare third with $310 billion or 9 percent and savings institutions hold 6rnpercent of $190 billion.

Commercial banksrnsaw the largest decrease in dollar terms in their holdings ofrncommercial/multifamily mortgage debt during the third quarter, a decrease ofrn$15 billion or 1 percent.  CMBS, CDO, and other ABS issues decreased theirrnholdings of these mortgages by $10 billion or 1.3 percent.  Savingsrninstitutions holdings decreased by $5 billion or 2.3 percent and  REITsrndecreased their holdings of commercial/multifamily mortgages by $4 billion orrn12 percent. 

The Federal Reserve Flow of Funds data summarizes thernholding of loans and/or the form of the security. For example, manyrnlife insurance companies invest both in whole loans for which they hold thernmortgage note (included under Life Insurance Companies in this data) and inrnCMBS, collateralized debt obligations (CDOs) and other asset backed securitiesrn(ABS) for which the security issuers and trustees hold the note.

The largest sharernof multifamily loans is held by a government sponsored enterprises (GSEs) or inrnagency- or GSE-backed mortgage pools. rnThe total in the first category was $197 billion or 21.7 percent, arnslight change from the second quarter when the total was $194 billion (21.3rnpercent).  In addition, agency-backed andrnGSE-backed mortgage pools accounted for another $162 billion or 17.8 percent,rnup from $160 billion or 17.5 percent in the second quarter. These tworncategories represent a total share of 10 percent of outstandingrncommercial/multifamily mortgages. rnCommercial banks held the second largest share of multifamily debt whichrnremained virtually constant from the second quarter to the third at $217 billion. 

Savingsrninstitutions contributed the largest amount to the decrease in multifamilyrnmortgage debt.  Their holdings fell $2rnbillion, or 4 percent.  REITS decreased their holdings of multifamilyrnmortgage debt by $1 billion, or 41 percent.  Nonfarm noncorporate businessrndecreased by $465 million, or 3 percent.  Government-sponsored enterprisesrnsaw the biggest increase in their holdings of multifamily mortgage debt by $3rnbillion or 2 percent.

 “Given its longer-term nature, the amount ofrncommercial and multifamily mortgages outstanding has remained relatively stablernthrough the credit crunch and recession,” said Jamie Woodwell, MBA's VicernPresident of Commercial Real Estate Research.  “The top line numbers fromrnthe Fed show a 0.8 percent decline in commercial and multifamily mortgage debtrnoutstanding during the third quarter, led by a $20 billion drop in the holdingsrnof banks and thrifts.  Excluding construction loans, however, banks andrnthrifts saw a $6 billion increase in their holdings of loans backed byrncommercial and multifamily properties.  Coupled with increases in thernholdings of multifamily mortgages by Fannie Mae and Freddie Mac, and decreasesrnin the balances backing commercial mortgage-backed securities, the overallrnamount of mortgage debt outstanding backed by commercial/multifamily propertiesrnremained relatively unchanged.”

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