Commercial and multifamily mortgage debt outstanding hit $2.95 trillion at the end of 2006 after growing by $333 billion, or 12.7 percent, from the end of 2005, according to the Mortgage Bankers Association analysis of the Federal Reserve Board Flow of Funds data.

In the fourth quarter alone, the debt outstanding increased by $99 billion, or 3.5 percent, from a year earlier.

Multifamily mortgage debt outstanding by itself stood at $731 billion at year-end — an increase of $51 billion, or 7.5 percent, over the year, and $15 billion, or 2.1 percent, in the fourth quarter alone.

“The growth in commercial/multifamily mortgage holdings comes amid a number of signs of continued market strength,” said Jamie Woodwell, MBA’s senior director for commercial/multifamily research. “The most recent Federal Reserve Beige Book characterized commercial real estate markets as strong, solid and firming. We also see low delinquencies and other signs of mortgage performance continuing to show strength.”

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 (and which appear in the Federal Reserve data under Life Insurance Companies) and in commercial mortgage-backed securities (CMBS), collateralized debt obligations (CDOs) and other asset-backed securities (ABS) for which the security trustees hold the notes (and which appear here under CMBS, CDO and other ABS issues).

Commercial banks continue to hold the largest share of commercial/multifamily mortgages, with almost $1.3 trillion, or 44 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 — that 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.

CMBS, CDO and other ABS pools are the second-largest holders of commercial/multifamily mortgages, holding $630 billion, or 21 percent of the total. Life insurance companies hold $284 billion, or 10 percent of the total, and savings institutions hold $203 billion, or 7 percent of the total. Government-sponsored enterprises (GSEs) and agency- and GSE-backed mortgage pools, including Fannie Mae, Freddie Mac and Ginnie Mae, hold $140 billion in multifamily loans that support the mortgage-backed securities they issue (referred to here as Agency- and GSE-backed mortgage pools) and an additional $80 billion “whole” loans in their own portfolios, for a total share of 7 percent of outstanding commercial/multifamily mortgages.

MULTIFAMILY MORTGAGE DEBT OUTSTANDING

Looking just at multifamily mortgages, the GSEs and Ginnie Mae hold the largest share of multifamily mortgages, with $140 billion in agency- and GSE-backed mortgage pools and $80 billion in their own portfolios — 30 percent of the total multifamily debt outstanding. They are followed by commercial banks with $160 billion, or 22 percent of the total; CMBS, CDO and other ABS issues with $103 billion, or 14 percent of the total; savings institutions with $96 billion, or 13 percent of the total; state and local governments with $61 billion, or 8 percent of the total; and life insurance companies with $45 billion, or 6 percent of the total.

CHANGES IN COMMERCIAL/MULTIFAMILY MORTGAGE DEBT OUTSTANDING DURING 2006

Between December 2005 and December 2006, commercial banks saw the largest increase in dollar terms in their holdings of commercial/multifamily mortgage debt — an increase of $161 billion, or 14 percent, which represents 48 percent of the total $333 billion increase. CMBS, CDO and other ABS issues increased their holdings of commercial/multifamily mortgages by $108 billion, or 21 percent — representing 32 percent of the net increase in commercial/multifamily mortgage debt outstanding. Life insurance companies experienced a net increase of $17 billion, or 7 percent.

In percentage terms, real estate investment trusts (REITs) saw the biggest increase in their holdings of commercial/multifamily mortgages — a jump of 36 percent — while private pension funds saw the biggest drop (a net change of -4 percent).

The $51 billion increase in multifamily mortgage debt outstanding during 2006 represents an 8 percent increase. In dollar terms, commercial banks saw the largest increase in their holdings of multifamily mortgage debt — up by $20 billion, or 14 percent, which represents 39 percent of the total increase. CMBS issues saw an increase of $13 billion, or 15 percent, in their holdings.

In percentage terms, REITs recorded the biggest increase in their holdings of multifamily mortgages, 52 percent, while private pension funds saw the biggest drop, -5 percent.

CHANGES IN COMMERCIAL/MULTIFAMILY MORTGAGE DEBT OUTSTANDING DURING THE FOURTH QUARTER

In the fourth quarter of 2006, CMBS, CDO and other ABS issues saw the largest increase in dollar terms in their holdings of commercial/multifamily mortgage debt — an increase of $49 billion, or 8 percent, which represents 49 percent of the total $99 billion increase. Commercial banks increased their holdings of commercial/multifamily mortgages by $44 billion, or 4 percent — representing 44 percent of the net increase in commercial/multifamily mortgage debt outstanding.

In percentage terms, CMBS, CDOs and other ABS issues saw the biggest increase in their holdings of commercial/multifamily mortgages — a jump of 8 percent — while savings institutions saw the biggest drop (a net change of -4 percent).

The $15 billion increase in multifamily mortgage debt outstanding between the third and fourth quarters represents a 2 percent increase. In dollar terms, commercial banks saw the largest increase in their holdings of multifamily mortgage debt — an increase of $10 billion, or 7 percent, which represents 67 percent of the total increase. CMBS, CDO and other ABS issues increased their holdings of multifamily mortgage debt by $6 billion, or 7 percent.

In percentage terms, commercial banks recorded the biggest increase in their holdings of multifamily mortgages, 7 percent, while savings institutions saw the biggest drop, -8 percent.

The Mortgage Bankers Association is a national association representing the real estate finance industry.

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