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NAHB: Weak new home sales show urgent need for financial rescue plan

National Mortgage Professional
Sep 24, 2008

Commercial/multifamily mortgage debt outstanding continued to grow in second quarterMortgagePress.comcommercial, multifamily, mortgage debt, Federal Reserve Board Flow of Funds data, CMBS, GSEs The level of commercial/multifamily mortgage debt outstanding grew by 1.5 percent in the second quarter, to $3.44 trillion, according to the Mortgage Bankers Association's (MBA) analysis of the Federal Reserve Board Flow of Funds data. The $3.44 trillion in commercial/multifamily mortgage debt outstanding recorded by the Federal Reserve was an increase of $51.3 billion from the first quarter 2008. Multifamily mortgage debt outstanding grew to $875 billion, an increase of $16.3 billion or 1.9 percent from first quarter. "Despite the persistent credit crunch, investors increased their holdings of commercial/multifamily mortgages in the second quarter," said Jamie Woodwell, MBA's Vice President of Commercial Real Estate Research. "The only major investor group to see a decline in their holdings was the commercial mortgage-backed securities (CMBS) market, which has been most profoundly affected by the credit crunch. Other investor groups including commercial banks, life insurance companies, thrifts and the government-sponsored enterprises (GSEs) increased their holdings over the quarter." 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, $1.46 trillion, or 43 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. It is the borrower's business income, not the income derived from the property's rents and leases, which drive the underwriting, pricing and performance of these loans. 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. 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. CMBS, CDO and other ABS issues are the second largest holders of commercial/multifamily mortgages, holding $762 billion, or 22 percent of the total. Life insurance companies hold $313 billion, or 9 percent of the total, and savings institutions hold $230 billion, or 7 percent of the total. The GSEs and agency - and GSE - backed mortgage pools (including Fannie Mae, Freddie Mac and Ginnie Mae) hold $146 billion in multifamily loans that support the mortgage-backed securities they issue and an additional $168 billion "whole" loans in their own portfolios, for a total share of 9 percent of outstanding commercial/multifamily mortgages. 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. Looking just at multifamily mortgages, the GSEs and Ginnie Mae hold the largest share of multifamily mortgages, with $146 billion in federally related mortgage pools and $168 billion in their own portfolios or 36 percent of the total multifamily debt outstanding. They are followed by commercial banks with $176 billion, or 20 percent of the total. CMBS, CDO and other ABS issuers hold $118 billion, or 14 percent of the total; savings institutions with $97 billion, or 11 percent of the total; state and local governments with $70 billion, or eight percent of the total; and life insurance companies with $50 billion, or six percent of the total. In the second quarter of 2008, commercial banks saw the largest increase in dollar terms in their holdings of commercial/multifamily mortgage debt - an increase of $35 billion, or three percent, which represents 69 percent of the total $51 billion increase. Life insurance companies increased their holdings of commercial/multifamily mortgages by $4 billion, or 8 percent. GSEs increased their holdings of commercial/multifamily mortgages by $10 billion, or six percent - representing 20 percent of the net increase in commercial/multifamily mortgage debt outstanding. Agency and GSE-backed mortgage pools increased their holdings of commercial/multifamily mortgages by $3 billion, or 2.3 percent. In percentage terms, GSEs saw the biggest increase in their holdings of commercial/multifamily mortgages, a jump of six percent. CMBS, CDO, and other ABS issues saw their holdings decrease by 1.3 percent. The $16 billion increase in multifamily mortgage debt outstanding between the first quarter and second quarter of 2008 represents a two percent increase. In dollar terms, GSEs saw the largest increase in their holdings of multifamily mortgage debt, an increase of $10 billion, or six percent, which represents 62 percent of the total increase. Agency and GSE-backed mortgage pools increased their holdings of multifamily mortgage debt by $3.3 billion, or 2.3 percent. Commercial banks increased by $3.2 billion, or 1.8 percent. CMBS, CDO and other ABS issues saw the biggest drop in their holdings of multifamily mortgage debt by $3 billion, or -2.7 percent. In percentage terms, GSEs recorded the biggest increase in their holdings of multifamily mortgages at 6.4 percent. CMBS, CDO and other ABS issues saw the biggest drop of -2.7 percent. Click here to view the report. For more information, visit www.mortgagebankers.org.
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