Washington, DC – December 14, 2010 – (RealEstateRama) — The level of commercial/multifamily mortgage debt outstanding decreased in the third quarter, to $3.2 trillion, according to the Mortgage Bankers Associationâ€™s (MBA) analysis of the Federal Reserve Board Flow of Funds data.
Declines were driven by drops in construction loans held by banks and thrifts and commercial and multifamily mortgages held in CMBS.
The $3.2 trillion in commercial/multifamily mortgage debt outstanding recorded by the Federal Reserve was a decrease of $42 billion or 1.3 percent from the second quarter of 2010. Multifamily mortgage debt outstanding increased to $847 billion, an increase of $2.3 billion or 0.3 percent from the second quarter of 2010.
â€œBorrowers are continuing to pay-off and pay-down loans at a faster rate than new loans are being taken out,â€ said Jamie Woodwell, MBAâ€™s Vice President of Commercial Real Estate Research. â€œThe CMBS market is experiencing the fastest net run-off, followed by commercial banks, which are seeing most of their net declines in construction lending. Fannie Mae, Freddie Mac and FHA are growing their multifamily mortgage books of business and life companies are matching portfolio run-off with new originations. The overall balance of commercial and multifamily mortgage debt outstanding is likely to continue to decline until commercial mortgage borrowing picks up significantly, although individual investor groups will take advantage of current market conditions to pick up share.â€
The Federal Reserve Flow of Funds data summarizes the holding of loans or, if the loans are securitized, the form of the security. For example, many life insurance companies invest both in whole loans for which they hold the mortgage note (included under Life Insurance Companies in this data) and in CMBS, collateralized debt obligations (CDOs) and other asset backed securities (ABS) for which the security issuers and trustees hold the note.
Commercial banks continue to hold the largest share of commercial/multifamily mortgages, $1.43 trillion, or 45 percent of the total. Many of the commercial mortgage loans reported by commercial banks however, are actually “commercial and industrial” loans to which a piece of commercial property has been pledged as collateral. An MBA Research PolicyNote found that among the top 10 commercial real estate bank lenders, 48 percent of their aggregate balance of commercial (non-multifamily) real estate loans were related to owner-occupied properties. (Note: It is the borrower’s business income, not the income derived from the property’s rents and leases, which drives the underwriting, pricing and performance of these loans.)
Since the other loans reported here are generally income property loans, meaning that the income primarily comes from rents, the commercial bank numbers are not comparable.
Additionally, the Federal Reserve estimate of commercial and multifamily mortgage debt outstanding includes an estimate of construction loans held by banks and thrifts. Based on data from the FDIC, between Q2 2010 and Q3 2010, the level of commercial and multifamily mortgage debt (excluding construction loans) held by banks and thrifts decreased by $7.5 billion, meaning the $30 billion decline in the Fedâ€™s estimate of bank/thrift-held debt, was driven by a decline of $22.5 billion in construction loan holdings.
CMBS, CDO and other ABS issuers are the second largest holders of commercial/multifamily mortgages, holding $640 billion, or 20 percent of the total. Agency and GSE portfolios and MBS hold $317 billion, or 10% of the total. Life insurance companies hold $299 billion, or 9 percent of the total, and savings institutions hold $180 billion, or 6 percent of the total. As noted above, many life insurance companies, banks and the GSEs purchase and hold a large number of CMBS, CDO and other ABS issues. These loans appear in the CMBS, CDO and other ABS category previously referenced.
MULTIFAMILY MORTGAGE DEBT OUTSTANDING
Looking just at multifamily mortgages, the GSEs and Ginnie Mae hold or guarantee the largest share of multifamily mortgages, with $317 billion or 38 percent of the total multifamily debt outstanding. They are followed by commercial banks with $204 billion, or 24 percent of the total. CMBS, CDO and other ABS issuers hold $103 billion, or 12 percent of the total; state and local governments with $75 billion, or 9 percent of the total; savings institutions with $60 billion, or 7 percent of the total; and life insurance companies with $47 billion, or 6 percent of the total.
CHANGES IN COMMERCIAL/MULTIFAMILY MORTGAGE DEBT OUTSTANDING
In the third quarter of 2010, commercial banks saw the largest decrease in dollar terms in their holdings of commercial/multifamily mortgage debt â€“ a decrease of $30 billion or 2 percent. CMBS, CDO, and other ABS issues decreased their holdings of commercial/multifamily mortgages by $12 billion or 2 percent. Finance companies decreased their holdings of commercial/multifamily mortgages by $2 billion or 3 percent. The Federal government decreased their holdings of commercial/multifamily mortgages by $2 billion or 2 percent. As mentioned earlier, the decline in bank and thrift holdings was driven by a drop in construction loans, many of them for the development of single-family homes.
In percentage terms, nonfinancial corporate business saw the largest decrease in their holdings of commercial/multifamily mortgages, a drop of 9 percent. State and local government saw their holdings increase by 3 percent.
CHANGES IN MULTIFAMILY MORTGAGE DEBT OUTSTANDING
The $2 billion increase in multifamily mortgage debt outstanding between the second quarter and third quarter 2010 represents a 0.3 percent increase. In dollar terms, agency and GSE portfolios and MBS saw the largest increase in their holdings of multifamily mortgage debt, an increase of $5 billion, or 2 percent. State and local government increased their holdings of multifamily mortgage debt by $2 billion, or 3 percent. Savings institutions increased by $839 million, or 1 percent. Commercial banks saw the largest decrease in their holdings of multifamily mortgage debt, $3 billion or 1 percent.
In percentage terms, private pension funds recorded the biggest increase in their holdings of multifamily mortgages at 12 percent. Nonfinancial corporate business saw the biggest decrease of 9 percent.
To view the full report click here.
The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 280,000 people in virtually every community in the country. Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation’s residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. Its membership of over 2,200 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance companies and others in the mortgage lending field. For additional information, visit MBA’s Web site: www.mortgagebankers.org.
Melissa Key 202-557-2799