The level of commercial/multifamily mortgage debt outstanding decreased in the second quarter, to $3.24 trillion, according to the Mortgage Bankers Association's (MBA) analysis of the Federal Reserve Board Flow of Funds data. Declines were driven by drops in commercial and multifamily mortgages held in commercial mortgage-backed securities (CMBS) and loans held by banks and thrifts.
The $3.24 trillion in commercial/multifamily mortgage debt outstanding recorded by the Federal Reserve was a decrease of $52 billion or 1.6 percent from the first quarter of 2010. Multifamily mortgage debt outstanding declined to $843 billion, a decrease of $5.4 billion or 0.6 percent from the first quarter of 2010.
"Demand for commercial and multifamily mortgages, while increasing, remained weak in the second quarter and contributed to the continuing trend of loans paying down and paying off faster than new ones replace them," said Jamie Woodwell, MBA's vice president of commercial real estate research. "As a result, the balance of mortgage debt outstanding declined for every major investor group with the exception of Fannie Mae's, Freddie Mac's and FHA/Ginnie Mae's multifamily portfolios and MBS."
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 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 Q1 2010 and Q2 2010, the level of commercial and multifamily mortgage debt (excluding construction loans) held by banks and thrifts decreased by $10 billion, meaning the $30 billion decline in the Fed's estimate of bank/thrift-held debt, was driven by a decline of $20 billion in construction loan holdings.
CMBS, CDO and other ABS issuers are the second largest holders of commercial/multifamily mortgages, holding $652 billion, or 20 percent of the total. Agency and GSE portfolios and MBS hold $311 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.
Looking just at multifamily mortgages, the GSEs and Ginnie Mae hold or guarantee the largest share of multifamily mortgages, with $311 billion or 37 percent of the total multifamily debt outstanding. They are followed by commercial banks with $207 billion, or 25 percent of the total. CMBS, CDO and other ABS issuers hold $106 billion, or 13 percent of the total; state and local governments with $73 billion, or 9 percent of the total; savings institutions with $59 billion, or 7 percent of the total; and life insurance companies with $47 billion, or 6 percent of the total.
In the second quarter of 2010, commercial banks saw the largest decrease in dollar terms in their holdings of commercial/multifamily mortgage debt—a decrease of $30 billion or 2 percent. CMBS, CDO, and other ABS issues decreased their holdings of commercial/multifamily mortgages by $14 billion or two percent. Savings institutions decreased their holdings of commercial/multifamily mortgages by $4 billion or two percent. Life insurance companies decreased their holdings of commercial/multifamily mortgages by $3 billion or one 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 seven percent. Private pension funds saw their holdings increase by eight percent.
The $5 billion decrease in multifamily mortgage debt outstanding between the first quarter and second quarter 2010 represents a 0.6 percent decrease. In dollar terms, commercial banks saw the largest decrease in their holdings of multifamily mortgage debt, a decrease of $2.3 billion, or one percent. CMBS, CDO and other ABS issues decreased their holdings of multifamily mortgage debt by $1.7 billion, or two percent. Savings institutions decreased by $1.6 billion, or three percent. Agency and government-sponsored enterprise (GSE) portfolios and MBS saw the biggest increase in their holdings of multifamily mortgage debt by $1.5 billion or 0.5 percent.
In percentage terms, nonfinancial corporate business recorded the biggest decrease in their holdings of multifamily mortgages at seven percent. Private pension funds saw the biggest increase of 10 percent.
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