The commercial mortgage market didn't get as much press, but it went into the tank shortly after the residential market did. However, if projections by the Mortgage Bankers Association turn out to be right, it is recovering steeply in that V shape that has so far eluded the residential side.
MBA, at its annual commercial conference in Orlando last week, gave a preview of its market research on the commercial niche.
The trade group is predicting $230 billion in commercial originations, which would be a 17% boost from 2011. Going forward, the numbers estimated are $245 billion in 2013, $265 billion in 2014, and $290 billion in 2015. That's more than 25% in all, a healthy increase in any market.
As far as the portfolio goes (and this includes multifamily), that's projected to hit $2.4 trillion this year and $2.5 trillion in 2015.
That's about 25% of the residential sector, a significant percentage of the whole mortgage market.
Of course it is a different type of lending than residential (though multifamily kind of straddles the two worlds). A one-off single-family default is annoying, but a single commercial mortgage default can bring down an institution.
Commercial mortgages are not immune from the “boom and bust” cycles on the residential side. Back in the 1990s there was a terrific bust in the business. Life insurers in particular were hurt pretty hard, but bravely re-entered the market, armed with tighter underwriting policies.
On the securitization side, things have been getting better as well, apparently. We quoted Trepp last week to the effect that CMBS loan loss severity fell below 40% in January, giving Manus Clancy of Trepp “cautious optimism” on a decent pipeline of new issuance to go along with recent loss resolutions and spread tightening.
It's too bad the projections for the residential side of the card aren't this rosy. But they're not. They are tepid at best.
Maybe if we had steeply declining home values people would buy… but we do have that. Maybe if we had record low interest rates… but we do have that. Maybe if we had a big market of foreclosed properties that lenders are willing to sell at distressed prices… of course, we do have that.
Maybe if lenders were a little less timid, and played a little less “gotcha” on mortgage apps, and worried less about oppressive mortgage regulation, the residential side would be in the same position as the commercial.
