Commercial/multifamily mortgage debt, declined slightly during the third quarter according to data released on Thursday by the Mortgage Bankers Association (MBA). The conclusion was based on MBA's analysis of the Federal Reserve Board Flow of Funds data.
During the third quarter the amount of commercial/multifamily debt outstanding declined by $28 billion or 0.8 percent to a total of $3.43 trillion. The multifamily mortgage debt portion of the total declined $1 billion or 0.1 percent to $912 billion.
The bulk of the commercial/multifamily debt is held by commercial banks, which have a 45 percent share or $1.53 billion on their books. The MBA notes, however, that among the holdings of the top 10 commercial real estate bank lenders 48 percent of these mortgages are actually real estate secured loans related to owner-occupied properties. In these loans it is the business' income rather than rents that provide the source of mortgage payments. This structure is the force that drove the underwriting, pricing, and performance of the loans.
CMBS, CDO, and other ABS issuers are the second largest holders of commercial/multifamily debt with $709 billion of the total, a 21 percent share. Life insurance companies are third with $310 billion or 9 percent and savings institutions hold 6 percent of $190 billion.
Commercial banks saw the largest decrease in dollar terms in their holdings of commercial/multifamily mortgage debt during the third quarter, a decrease of $15 billion or 1 percent. CMBS, CDO, and other ABS issues decreased their holdings of these mortgages by $10 billion or 1.3 percent. Savings institutions holdings decreased by $5 billion or 2.3 percent and REITs decreased their holdings of commercial/multifamily mortgages by $4 billion or 12 percent.
The Federal Reserve Flow of Funds data summarizes the holding of loans and/or 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.
The largest share of multifamily loans is held by a government sponsored enterprises (GSEs) or in agency- or GSE-backed mortgage pools. The total in the first category was $197 billion or 21.7 percent, a slight change from the second quarter when the total was $194 billion (21.3 percent). In addition, agency-backed and GSE-backed mortgage pools accounted for another $162 billion or 17.8 percent, up from $160 billion or 17.5 percent in the second quarter. These two categories represent a total share of 10 percent of outstanding commercial/multifamily mortgages. Commercial banks held the second largest share of multifamily debt which remained virtually constant from the second quarter to the third at $217 billion.
Savings institutions contributed the largest amount to the decrease in multifamily mortgage debt. Their holdings fell $2 billion, or 4 percent. REITS decreased their holdings of multifamily mortgage debt by $1 billion, or 41 percent. Nonfarm noncorporate business decreased by $465 million, or 3 percent. Government-sponsored enterprises saw the biggest increase in their holdings of multifamily mortgage debt by $3 billion or 2 percent.
"Given its longer-term nature, the amount of commercial and multifamily mortgages outstanding has remained relatively stable through the credit crunch and recession," said Jamie Woodwell, MBA's Vice President of Commercial Real Estate Research. "The top line numbers from the Fed show a 0.8 percent decline in commercial and multifamily mortgage debt outstanding during the third quarter, led by a $20 billion drop in the holdings of banks and thrifts. Excluding construction loans, however, banks and thrifts saw a $6 billion increase in their holdings of loans backed by commercial and multifamily properties. Coupled with increases in the holdings of multifamily mortgages by Fannie Mae and Freddie Mac, and decreases in the balances backing commercial mortgage-backed securities, the overall amount of mortgage debt outstanding backed by commercial/multifamily properties remained relatively unchanged."