The level of commercial/multifamily mortgage debt outstanding grew by 2.8 percent in the third quarter, exceeding $3.2 trillion, which is a record, according to the Mortgage Bankers Association analysis of the Federal Reserve Board Flow of Funds data.

The $3.22 trillion in commercial/multifamily mortgage debt outstanding recorded by the Federal Reserve was an increase of $87.7 billion from the second quarter 2007, MBA reported. Multifamily mortgage debt outstanding grew to $813 billion, an increase of $23.5 billion, or 3 percent, from the second quarter.

“The third quarter included the periods immediately before and immediately after the dramatic adjustments in the capital markets,” Jamie Woodwell, MBA’s senior director of commercial/multifamily research, said in a statement. “As a result, commercial/multifamily mortgage debt outstanding grew to a new record — $3.2 trillion — but the quarter-over-quarter change in mortgage debt outstanding fell from $107 billion last quarter to $87.7 billion this quarter. Even with the drop, the $87.7 billion increase in Q3 still marked the fourth-largest increase on record.”

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 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, $1.35 trillion, or 42 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 (nonmultifamily) 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 issues are the second-largest holders of commercial/multifamily mortgages, holding $760 billion, or 24 percent of the total. Life insurance companies hold $293 billion, or 9 percent of the total, and savings institutions hold $212 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 $146 billion in multifamily loans that support the mortgage-backed securities they issue and an additional $126 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 $146 billion in federally related mortgage pools and $126 billion in their own portfolios — 34 percent of the total multifamily debt outstanding. They are followed by commercial banks with $163 billion, or 20 percent of the total; CMBS, CDO and other ABS issuers with $123 billion, or 15 percent of the total; savings institutions with $95 billion, or 12 percent of the total; state and local governments with $65 billion, or 8 percent of the total; and life insurance companies with $47 billion, or 6 percent of the total.

In the third quarter of 2007, CMBS, CDO and other ABS issues saw the largest increase in dollar terms in their holdings of commercial/multifamily mortgage debt — an increase of $50 billion, or 7 percent, which represents 57 percent of the total $88 billion increase. Commercial banks increased their holdings of commercial/multifamily mortgages by $9 billion, or 0.7 percent — representing 10.5 percent of the net increase in commercial/multifamily mortgage debt outstanding.

In percentage terms, finance companies saw the biggest increase in their holdings of commercial/multifamily mortgages — a jump of 7.5 percent, while state and local government retirement funds saw their holdings decrease by 2 percent.

The $23.5 billion increase in multifamily mortgage debt outstanding between second-quarter 2007 and third-quarter 2007 represents a 3 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 $7 billion, or 6 percent, which represents 29.4 percent of the total increase. Government-sponsored enterprises increased their holdings of multifamily mortgage debt by $6.8 billion, or 5.7 percent. Agency- and GSE-backed mortgage pool holdings increased by $4.6 billion, or 3.2 percent.

In percentage terms, CMBS, CDO and other ABS issues recorded the biggest increase in their holdings of multifamily mortgages, up 6 percent, while REITs saw the biggest drop, down 6.9 percent.

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