The level of commercial/multifamily mortgage debt outstanding surpassed $2.7 trillion in the first quarter, growing 2.9 percent over the past three months, according to the Mortgage Bankers Association analysis of Federal Reserve Board Flow of Funds data.

The Federal Reserve 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) for which the security issuers and trustees hold the note (and which appear in the Federal Reserve data under CMBS issuers).

At the end of the first quarter 2006, $2.7 trillion in commercial/multifamily mortgage debt outstanding was recorded by the Federal Reserve, an increase of $76.4 billion, or 2.9 percent, from the fourth quarter 2005. Multifamily mortgage debt outstanding stood at $690 billion at the end of the first quarter — an increase of $15 billion, or 2.3 percent, from the fourth quarter.

“Nearly every investor group continues to expand their investments in commercial and multifamily mortgages,” said Doug Duncan, MBA’s chief economist and senior vice president of Research and Business Development. “From banks to CMBS investors to life companies and the GSEs, strong loan performance, improving property markets and the continued recognition of commercial real estate as a part of a balanced portfolio are all supporting continued investor demand for commercial/multifamily mortgage debt.”

Commercial banks continue to hold the largest share of commercial/multifamily mortgages, with almost $1.2 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 and 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 the loan. Since the other loans are income property loans, meaning that the income primarily comes from rents, the commercial bank numbers are not comparable.

CMBS pools are the second-largest holders of commercial/multifamily mortgages, holding $577 billion, or 21 percent of the total. Life insurance companies hold $269 billion, or 10 percent of the total, and savings institutions hold $202 billion, or 7 percent of the total. Government Sponsored-Enterprises (GSEs) and federally related mortgage pools, including Fannie Mae, Freddie Mac and Ginnie Mae, hold $132 billion in multifamily loans that support the mortgage-backed securities they issue (referred to here as federally related mortgage pools) and an additional $66 billion “whole” loans in their own portfolios, for a total share of 7 percent of outstanding commercial/multifamily mortgages.

Looking just at multifamily mortgages, the GSEs and Ginnie Mae hold the largest share of multifamily mortgages, with $132 billion in federally related mortgage pools and $66 billion in their own portfolios — 29 percent of the total multifamily debt outstanding. They are followed by commercial banks with $145 billion, or 21 percent of the total; savings institutions with $100 billion, or 15 percent of the total; CMBS issuers with $98 billion, or 14 percent of the total; state and local governments with $59 billion, or 9 percent of the total; and life insurance companies with $43 billion, or 6.2 percent of the total.

In the third quarter of 2005, commercial banks saw the largest increase in dollar terms in their holdings of commercial/multifamily mortgage debt — an increase of $38 billion, or 3 percent, which represents 49 percent of the total $76.4 billion increase. CMBS issuers increased their holdings of commercial/multifamily mortgages by $24 billion, or 4 percent — representing 31 percent of the net increase in commercial/multifamily mortgage debt outstanding.

In percentage terms, REITs saw the biggest increase in their holdings of commercial/multifamily mortgages — a jump of 8 percent — while state and local government retirement funds saw the biggest drop (a net change of -0.6 percent).

The $15.3 billion increase in multifamily mortgage debt outstanding between the fourth and first quarters represents a 2.3 percent increase. In dollar terms, commercial banks saw the largest increase in their holdings of multifamily mortgage debt — an increase of $5 billion, or 3.8 percent, which represents 35 percent of the total increase. CMBS issuers saw an increase of $3 billion, or 3.5 percent, in their holdings. Federally related mortgage pools increased their holdings of multifamily mortgage debt by $2.6 billion, or 2 percent.

In percentage terms, REITs recorded the biggest increase in their holdings of multifamily mortgages, 8.3 percent, while the federal government saw the biggest drop, -2 percent.

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

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