The level of commercial/multifamily mortgage debt outstanding grew by 1.8 percent in the first quarter, to $3.4 trillion, according to the Mortgage Bankers Association (MBA) analysis of the Federal Reserve Board Flow of Funds data.

The first-quarter load of mortgage debt outstanding represented an increase of $60.8 billion from fourth-quarter 2007. Multifamily mortgage debt outstanding grew to $856 billion, an increase of $18.5 billion, or 2.2 percent, from the fourth quarter.

"Investors continue to increase their holdings of commercial/multifamily mortgages," said Jamie Woodwell, MBA’s senior director of commercial/multifamily research, in a statement. "The global credit crunch meant a net decline in the balance of mortgages held in CMBS, CDO and other ABS, but banks, thrifts, life insurance companies, Fannie Mae, Freddie Mac and nearly every other investor group increased their holdings of commercial and multifamily mortgages during the quarter."

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, $1.43 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 Mortgage Bankers Association 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 issues are the second-largest holders of commercial/multifamily mortgages, holding $777 billion, or 23 percent of the total. Life insurance companies hold $309 billion, or 9 percent of the total, and savings institutions hold $226 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 $143 billion in multifamily loans that support the mortgage-backed securities they issue and an additional $158 billion "whole" loans in their own portfolios, for a total share of 9 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 $143 billion in federally related mortgage pools and $158 billion in their own portfolios — 35 percent of the total multifamily debt outstanding. They are followed by commercial banks with $173 billion, or 20 percent of the total; CMBS, CDO and other ABS issuers with $122 billion, or 14 percent of the total; savings institutions with $94.5 billion, or 11 percent of the total; state and local governments with $67 billion, or 8 percent of the total; and life insurance companies with $49 billion, or 6 percent of the total.

CHANGES IN COMMERCIAL/MULTIFAMILY MORTGAGE DEBT OUTSTANDING

In the first quarter of 2008, commercial banks saw the largest increase in dollar terms in their holdings of commercial/multifamily mortgage debt — an increase of $30 billion, or 2 percent, which represents 49 percent of the total $61 billion increase. Savings institutions increased their holdings of commercial/multifamily mortgages by $10 billion, or 5 percent. Government-sponsored enterprises (GSEs) increased their holdings of commercial/multifamily mortgages by $10 billion, or 7 percent — representing 17 percent of the net increase in commercial/multifamily mortgage debt outstanding.  Agency- and GSE-backed mortgage pools increased their holdings of commercial/multifamily mortgages by $3 billion, or 2.5 percent.

In percentage terms, finance companies saw the biggest increase in their holdings of commercial/multifamily mortgages — a jump of 15 percent, while state and local government retirement funds saw their holdings decrease by 2.6 percent.

CHANGES IN MULTIFAMILY MORTGAGE DEBT OUTSTANDING

The $18 billion increase in multifamily mortgage debt outstanding between fourth-quarter 2007 and first-quarter 2008 represents a 2.2 percent increase. In dollar terms, GSEs saw the largest increase in their holdings of multifamily mortgage debt — an increase of $10 billion, or 7 percent, which represents 54 percent of the total increase. Agency- and GSE-backed mortgage pools increased their holdings of multifamily mortgage debt by $3.4 billion, or 2.5 percent. Commercial banks increased by $4 billion, or 2.6 percent. CMBS, CDO and other ABS issues saw the biggest drop in their holdings of multifamily mortgage debt by $9 billion, or -1.1 percent.

In percentage terms, GSEs recorded the biggest increase in their holdings of multifamily mortgages, 7 percent, while state and local government retirement funds saw the biggest drop, -2.6 percent.


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