The level of commercial/multifamily mortgage debt outstanding decreased by 1.7% in the fourth quarter of 2009, to $3.4 trillion, according to the Mortgage Bankers Association's (MBA) analysis of the Federal Reserve Board Flow of Funds data.
On a year-over-year basis, the amount of mortgage debt outstanding at the end of 2009 was $99 billion lower than at the end of 2008 – a decline of 2.8%.
Declines were driven by drops in commercial and multifamily mortgages held in commercial mortgage-backed securities (CMBS) and construction loans held by banks and thrifts, the MBA says.
The $99 billion year-over-year decline was the largest nominal dollar decline recorded in the MBA's series, but the percentage decline was not. The largest year-over-year percentage decline was a drop of 5.5% between the second quarter of 1992 and the second quarter of 1993.
The $3.4 trillion in commercial/multifamily mortgage debt outstanding recorded by the Federal Reserve was $58 billion lower than the third-quarter 2009 figure. Multifamily mortgage debt outstanding fell to $897 billion – a decrease of $11 billion, or 1.2%, from the third quarter.
"Payoffs and pay-downs of outstanding mortgages are exceeding new originations," says Jamie Woodwell, MBA's vice president of commercial real estate research. "Driving the decline was the CMBS market, with essentially no new mortgages coming in, and banks and thrifts, with declines in their construction-related holdings."
The Federal Reserve Flow of Funds data summarizes the holdings 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 CMBS, collateralized debt obligations and other asset-backed securities for which the security issuers and trustees hold the note.
Commercial banks continue to hold the largest share of commercial/multifamily mortgages, $1.51 trillion, or 45% 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, the MBA notes, adding that 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.
An MBA Research PolicyNote found that among the top 10 commercial real estate bank lenders, 48% of their aggregate balance of commercial (non-multifamily) real estate loans were related to owner-occupied properties.
SOURCE: Mortgage Bankers Association