MBA Analyzes Fed Data On Commercial Mortgages

The level of commercial/multifamily mortgage debt outstanding decreased in the third quarter to $3.43 trillion, according to the Mortgage Bankers Association's (MBA) analysis of the Federal Reserve Board Flow of Funds data.

The $3.43 trillion in commercial/multifamily mortgage debt outstanding recorded by the Federal Reserve was a decrease of $28 billion, or 0.8%, from the second quarter. Multifamily mortgage debt outstanding dropped to $912 billion – a decrease of $1 billion (0.1%) from the second quarter.

‘Given its longer-term nature, the amount of commercial and multifamily mortgages outstanding has remained relatively stable through the credit crunch and recession,’ says Jamie Woodwell, the MBA's vice president of commercial real estate research.

The 0.8% decline in debt outstanding was led by a $20 billion drop in the holdings of banks and thrifts, Woodwell adds.

‘Excluding construction loans, however, banks and thrifts saw a $6 billion increase in their holdings of loans backed by commercial and multifamily properties," Woodwell explains. "Coupled with increases in the holdings of multifamily mortgages by Fannie Mae and Freddie Mac, and decreases in the balances backing commercial mortgage-backed securities (CMBS), the overall amount of mortgage debt outstanding backed by commercial/multifamily properties remained relatively unchanged.’

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 (included under "life insurance companies" in this data) and in CMBS, collateralized debt obligations (CDOs) and other asset-backed securities (ABS) for which the security issuers and trustees hold the note.

Commercial banks continue to hold the largest share of commercial/multifamily mortgages – $1.53 trillion, or 45% of the total, the MBA reports. 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.

An MBA Research PolicyNote found that, among the top 10 commercial real estate bank lenders, 48% of the aggregate balance of commercial (i.e., non-multifamily) real estate loans were related to owner-occupied properties. Here, MBA clarifies that it is a borrower's business income, and not the income derived from the property's rents and leases, that drives the underwriting, pricing and performance of these loans.

Because 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, the MBA says.

CMBS, CDO and other ABS issuers are the second-largest holders of commercial/multifamily mortgages, holding $709 billion, or 21% of the total. Life insurance companies hold $310 billion, or 9% of the total, and savings institutions hold $190 billion, or 6% of the total.

The government-sponsored enterprises (GSEs), agency-backed mortgage pools and GSE-backed mortgage pools – including Fannie Mae, Freddie Mac and Ginnie Mae – hold $197 billion in multifamily loans that support the mortgage-backed securities they issued and an additional $162 billion in whole loans in their own portfolios. This represents a total share of 10% of outstanding commercial/multifamily mortgages.

Looking just at multifamily mortgages, the GSEs and Ginnie Mae hold the largest share of multifamily mortgages, with $197 billion in federally related mortgage pools and $162 billion in their own portfolios (or 39% of the total multifamily debt outstanding).

They are followed by commercial banks, with $217 billion, or 24% of the total; CMBS, CDO and other ABS issuers, with $110 billion, or 12% of the total; state and local governments, with $66 billion, or 7% of the total; savings institutions, with $64 billion, or 7% of the total; and life insurance companies, with $50 billion, or 6% of the toal.

In the third quarter, commercial banks saw the largest decrease in dollar terms in their holdings of commercial/multifamily mortgage debt – a decrease of $15 billion, or 1%. CMBS, CDO and other ABS issues decreased their holdings of commercial/multifamily mortgages by $10 billion (1.3%); savings institutions decreased their holdings by $5 billion (2.3%); and real estate investment trusts (REITs) decreased their holdings by $4 billion (12%).

In percentage terms, nonfinancial corporate businesses saw the largest decrease in their holdings of commercial/multifamily mortgages – a drop of 37%. REITs saw their holdings decrease by 12%.

SOURCE: Mortgage Bankers Association


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