Driven by drops in commercial and multifamily mortgages held in commercial mortgage-backed securities[IMAGE](CMBS) and construction loans held by banks and thrifts, the level of commercial/multifamily debt outstanding continued to decline in the first quarter of this year, the ""Mortgage Bankers Association"":http://www.mbaa.org/default.htm (MBA) recently reported.
According to ""MBA's analysis of the Federal Reserve Board Flow of Funds data"":http://www.mortgagebankers.org/files/Research/CommercialServicing/Q110CMFDebtOutstanding.pdf, commercial/multifamily debt outstanding fell to $3.31 trillion in the first quarter, representing a $31 billion or 0.9 percent decrease from the fourth quarter of 2009. However, multifamily debt itself rose to $852 billion, an increase of $3 billion or 0.4 percent from the previous quarter.
""Low levels of commercial mortgage borrowing mean that property investors are paying off and paying down more in mortgages than they are taking out,"" said Jamie Woodwell MBA's VP of commercial real estate research.
Woodwell said the balance of construction loans at banks and commercial and multifamily mortgages held in CMBS and by life insurance companies saw the largest declines. Meanwhile, the balance of multifamily mortgages backed by Fannie Mae, Freddie Mac, and the Federal Housing Administration saw the largest increase, he said.
Representing $1.49 trillion or 45 percent of the total, commercial banks continued to hold the largest share of commercial/multifamily mortgages in the first quarter. However, MBA said it is important to note that many of the commercial mortgage loans reported by commercial banks were actually ""commercial and industrial"" loans to which a piece of commercial property had been pledged as collateral.
Among the top 10 commercial real estate bank lenders, 48 percent of their aggregate balance of commercial real estate loans, not including multifamily loans, was related to owner-occupied properties, an MBA Research PolicyNote found. According to MBA, it is the borrower's business income, not the income derived from the property's rents and leases, which drives the underwriting, pricing, and performance of these loans. Since the other loans reported in the report are generally income property loans, meaning that the income primarily comes from rents, the commercial bank numbers are not comparable, MBA explained.
Additionally, the Federal Reserve estimate of commercial and multifamily mortgage debt outstanding included an estimate of construction loans held by banks and thrifts. Based on data from the FDIC, between the fourth quarter of 2008 and the fourth quarter of 2009, the level of commercial/multifamily mortgage debt (excluding construction loans) held by banks and thrifts increased by $30 billion, meaning the $54 billion decline in the Fed's estimate of bank/thrift-held debt was driven by a decline of $80 billion in construction loan holdings.
CMBS, collateralized debt obligation (CDO), and other asset-backed security (ABS) issuers were the second largest holder of commercial/multifamily mortgages, holding $679 billion or 21 percent of the total. Agency and government-sponsored enterprise (GSE) portfolios and MBS held $309 billion or 9 percent of the total, life insurance companies held $302 billion or 9 percent of the total, and savings institutions held $184 billion or 6 percent of the total.
Looking just at multifamily mortgages, the GSEs and Ginnie Mae held or guaranteed the largest share of multifamily mortgages, with $309 billion or 36 percent of the total multifamily debt outstanding. Commercial banks came in next with $210 billion or 25 percent of the total, and CMBS, CDO, and other ABS issuers held $107 billion or 13 percent of the total. In addition, state and local governments held $77 billion or 9 percent of the total, savings institutions held $60 billion or 7 percent of the total, and life insurance companies held $48 billion or 6 percent of the total.