The amount of commercial mortgage debt outstanding declined 1.3% between the second and third quarters, as there were fewer construction loans held by banks and thrifts and commercial and multifamily mortgages held in commercial mortgage-backed securities. This is according to the Mortgage Bankers Association's analysis of the Federal Reserve Board Flow of Funds data.
There was $3.2 trillion in commercial/multifamily mortgage debt outstanding recorded by the Federal Reserve, a decrease of $42 billion. Multifamily mortgage debt outstanding increased to $847 billion, an increase of $2.3 billion from the second quarter.
Jamie Woodwell, MBA's vice president of commercial real estate research, said "The CMBS market is experiencing the fastest net run-off, followed by commercial banks, which are seeing most of their net declines in construction lending.
"Fannie Mae, Freddie Mac and FHA are growing their multifamily mortgage books of business and life companies are matching portfolio run-off with new originations. The overall balance of commercial and multifamily mortgage debt outstanding is likely to continue to decline until commercial mortgage borrowing picks up significantly, although individual investor groups will take advantage of current market conditions to pick up share."
While banks have the largest share of commercial loans, 45%, MBA said many are really commercial & industrial loans to which real estate has been pledged. Furthermore, among the top 10 bank lenders, 48% of their aggregate balance of commercial (non-multifamily) real estate loans is related to owner-occupied properties. Therefore, 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.
Nearly one-fifth of CRE loans are held by CMBS structures, 10% are held by an agency or government-sponsored enterprise, while life companies own 9% and thrifts 6%.
