The level of commercial/multifamily mortgage debt outstanding grew by 2.5 percent in the first quarter, exceeding $3 trillion for the first time, according to the Mortgage Bankers Association analysis of the Federal Reserve Board Flow of Funds data.
The $3.001 trillion in commercial/multifamily mortgage debt outstanding recorded by the Federal Reserve was an increase of $72.4 billion from the fourth quarter of 2006. Multifamily mortgage debt outstanding grew to $741 billion, an increase of $11.8 billion, or 1.6 percent, from the second quarter.
“Issuers of commercial mortgage-backed securities (CMBS), collateralized debt obligations (CDO) and other asset-backed securities (ABS) were responsible for almost 60 percent of the increase in commercial/multifamily mortgage debt outstanding,” said Jamie Woodwell, MBA’s senior director of commercial/multifamily research. “Looking just at the multifamily market, CMBS, CDO and other ABS issuers were responsible for a full 70 percent of the growth.”
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 this data under life insurance companies) and in CMBS, CDOs and other 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 $1.3 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 — that drives the underwriting, pricing and performance of these loans. A recent 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 issuers are the second-largest holders of commercial/multifamily mortgages, holding $661 billion, or 22 percent of the total. Life insurance companies hold $282 billion, or 9 percent of the total, and savings institutions hold $205 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 $143 billion in multifamily loans that support the mortgage-backed securities they issue and an additional $81 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 $143 billion in federally related mortgage pools and $81 billion in their own portfolios — 30 percent of the total multifamily debt outstanding. They are followed by commercial banks with $159 billion, or 22 percent of the total; CMBS, CDO and other ABS issuers with $109 billion, or 15 percent of the total; savings institutions with $94 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.
In the first quarter of 2007, CMBS, CDO and other ABS issuers saw the largest increase in dollar terms in their holdings of commercial/multifamily mortgage debt — an increase of $42 billion, or 6.9 percent, which represents 59 percent of the total $72.4 billion increase. Commercial banks increased their holdings of commercial/multifamily mortgages by $22 billion, or 2 percent — representing 30 percent of the net increase in commercial/multifamily mortgage debt outstanding.
In percentage terms, real estate investment trusts (REITs) saw the biggest increase in their holdings of commercial/multifamily mortgages — a jump of 12 percent — while finance companies saw the biggest drop (a net change of -4 percent).
The $11.8 billion increase in multifamily mortgage debt outstanding between the fourth quarter 2006 and first quarter 2007 represents a 1.6 percent increase. In dollar terms, CMBS, CDO and other ABS issuers saw the largest increase in their holdings of multifamily mortgage debt — an increase of $8.2 billion, or 8.1 percent, which represents 70 percent of the total increase. Agency- and GSE-backed mortgage pools increased their holdings of multifamily mortgage debt by $2.8 billion, or 2 percent.
In percentage terms, CMBS, CDO and other ABS issuers recorded the biggest increase in their holdings of multifamily mortgages, 8.1 percent, while finance companies saw the biggest drop, -5.9 percent.