Commercial Mortgage Debt Dips Slightly in 1st Quarter

Washington-The level of commercial/multifamily mortgage debt outstanding decreased slightly by 0.1% in the third quarter, to $3.44 trillion, according to the Mortgage Bankers Association's analysis of the Federal Reserve Board Flow of Funds data.

The $3.44 trillion in commercial/multifamily mortgage debt outstanding recorded by the Federal Reserve was a decrease of $3.3 billion from the second quarter 2008. Multifamily mortgage debt outstanding grew to $890 billion, an increase of $15.2 billion or 1.7% from second quarter.

"Uncertainty surrounding the weakening economy, coupled with the continuing pressures of the credit crunch, led to a slight pullback among investors in commercial/multifamily mortgages in the third quarter," said Jamie Woodwell, MBA's vice president of commercial real estate research. "The government-sponsored enterprises and other finance companies have taken advantage of the limited competition to increase their holdings, but the numbers show banks and thrifts beginning to pull back on their holdings and the CMBS market continuing to pay-down its holdings with few, if any, acquisitions."

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 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, $1.49 trillion, or 43% 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.

An MBA research policy note found that among the top 10 commercial real estate bank lenders, 48% of their aggregate balance of commercial real estate loans was 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 issuers are the second largest holders of commercial/multifamily mortgages, holding $758 billion, or 22% of the total. Life insurance companies hold $315 billion, or 9% of the total, and savings institutions hold $191 billion, or 6% of the total.

The GSEs, agency-backed mortgage pools and GSE-backed mortgage pools, including Fannie Mae, Freddie Mac and Ginnie Mae, hold $149 billion in multifamily loans that support the mortgage-backed securities; and issued an additional $179 billion "whole" loans in their own portfolios for a total share of 10% of outstanding commercial/multifamily mortgages. As noted above, many life insurance companies, banks and the GSEs purchase and hold a large number of CMBS, CDO and other ABS issues. These loans appear in the CMBS, CDO and other ABS category.

According to the MBA, the GSEs and Ginnie Mae hold the largest share of multifamily mortgages, with $149 billion in federally related mortgage pools and $180 billion in their own portfolios or 37% of the total multifamily debt outstanding. They are followed by commercial banks with $210 billion, or 24% of the total.

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