The level of commercial/multifamily mortgage debt outstanding grew by 2.9 percent in the third quarter, reaching $2.85 trillion, according to the Mortgage Bankers Association analysis of the Federal Reserve Board Flow of Funds data. This increase is $79.9 billion higher than the second quarter.
Multifamily mortgage debt outstanding, by itself, grew to $714 billion at the end of the third quarter — an increase of $10.8 billion, or 1.5 percent, from the second quarter.
“Nearly every investor group increased their stake in commercial/multifamily mortgages in the third quarter,” said Jamie Woodwell, MBA’s senior director of commercial/multifamily research. “As investors assess different investment options for their capital, commercial/multifamily mortgages continue to attract a great deal of interest.”
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 in commercial mortgage-backed securities (CMBS), collateralized debt obligations (CDOs), and other asset-backed securities (ABS) for which the security issuers and trustees hold the note (and which appear here under CMBS, CDO and other ABS issuers).
Commercial banks continue to hold the largest share of commercial/multifamily mortgages, with more than $1.2 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 $583 billion, or 21 percent of the total. Life insurance companies hold $279 billion, or 10 percent of the total, and savings institutions hold $212 billion, or 8 percent of the total. Government Sponsored-Enterprises (GSEs) and federally related mortgage pools, including Fannie Mae, Freddie Mac and Ginnie Mae, hold $137 billion in multifamily loans that support the mortgage-backed securities they issue (referred to here as federally related mortgage pools) and an additional $79 billion “whole” loans in their own portfolios, for a total share of 8 percent of outstanding commercial/multifamily mortgages.
Looking just at multifamily mortgages, the GSEs and Ginnie Mae hold the largest share of multifamily mortgages, with $137 billion in federally related mortgage pools and $79 billion in their own portfolios — 30 percent of the total multifamily debt outstanding. They are followed by commercial banks with $149 billion, or 21 percent of the total; savings institutions with $103 billion, or 15 percent of the total; CMBS, CDO and other ABS issuers with $97 billion, or 14 percent of the total; state and local governments with $60 billion, or 8 percent of the total; and life insurance companies with $44 billion, or 6 percent of the total.
In the third quarter of 2006, commercial banks saw the largest increase in dollar terms in their holdings of commercial/multifamily mortgage debt — an increase of $36 billion, or 3 percent, which represents 45 percent of the total $79.9 billion increase. CMBS, CDO and other ABS issuers increased their holdings of commercial/multifamily mortgages by $26 billion, or 5 percent — representing 33 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 14 percent — while state and local government retirement funds saw the biggest drop (a net change of -1 percent).
In dollar terms, CMBS, CDO and other ABS issuers saw the largest increase in their holdings of multifamily mortgage debt — an increase of $3.1 billion, or 3.3 percent, which represents 29 percent of the total increase. Federally related mortgage pools increased their holdings of multifamily mortgage debt by $2.5 billion, or 1.6 percent. In percentage terms, CMBS, CDO and other ABS issuers recorded the biggest increase in their holdings of multifamily mortgages, 3.3 percent, while finance companies saw the biggest drop, -2.2 percent.
The Mortgage Bankers Association is a national association representing the real estate finance industry.