Multifamily and Commercial Mortgage Debt Remains Flat in Q1; Investor Groups Increase Holdings as Banks Reduce Positions

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According to the Mortgage Bankers Association's (MBA) analysis of the Federal Reserve Board Flow of Funds data, the level of commercial/multifamily mortgage debt outstanding remained essentially unchanged at $2.4 trillion in the first quarter of 2011, decreasing by 0.1 percent from fourth quarter 2010.

MBA's analysis was changed in the fourth quarter of 2010 to more accurately reflect the true level of mortgages backed by income-producing commercial and multifamily properties. The changes are detailed in Appendix A of the report.

The $2.4 trillion in commercial/multifamily mortgage debt outstanding was $3 billion lower than the fourth quarter 2010 figure. Multifamily mortgage debt outstanding rose to $800 billion, an increase of $3 billion or 0.4 percent from the fourth quarter.

"New commercial and multifamily mortgage lending offset the amount of debt paid-off and paid-down during the first quarter, leaving the outstanding balance essentially unchanged," said Jamie Woodwell, MBA's Vice President of Commercial Real Estate Research. "Five of the seven largest investor groups increased their holdings of commercial and multifamily mortgages during the quarter. Banks and thrifts and finance companies saw declines in the balances of commercial and multifamily mortgages they hold."

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 which appear in this data under Life Insurance Companies) and in commercial mortgage-backed securities (CMBS), collateralized debt obligations (CDO) and other asset backed securities (ABS) for which the security issuers and trustees hold the note (and which appear here under CMBS, CDO and other ABS issuers).

MBA recently improved its reporting of commercial and multifamily mortgage debt outstanding. The new reporting excludes two categories of loans that had formerly been included - loans for acquisition, development and construction and loans collateralized by owner-occupied commercial properties. By excluding these loan types, the analysis here more accurately reflects the balance of loans supported by office buildings, retail centers, apartment buildings and other income-producing properties that rely on rents and leases to make their payments.

Commercial banks continue to hold the largest share of commercial/multifamily mortgages, $794 billion, or 33 percent of the total.

CMBS, CDO and other ABS issues are the second largest holders of commercial/multifamily mortgages, holding $626 billion, or 26 percent of the total. Agency and GSE portfolios and MBS hold $327 billion, or 14 percent of the total, and life insurance companies hold $299 billion, or 13 percent of the total. 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 categories.

MULTIFAMILY MORTGAGE DEBT OUTSTANDING

Looking solely at multifamily mortgages, agency and GSE portfolios and MBS hold the largest share of multifamily mortgages, with $327 billion or 41 percent of the total multifamily debt outstanding. They are followed by banks and thrifts with $214 billion, or 27 percent of the total. CMBS, CDO and other ABS issuers hold $98 billion, or 12 percent of the total; state and local governments hold $75 billion, or 9 percent of the total; life insurance companies hold $47 billion, or 6 percent of the total; and the federal government holds $14 billion, or 2 percent of the total.

CHANGES IN COMMERCIAL/MULTIFAMILY MORTGAGE DEBT OUTSTANDING

In the first quarter of 2011, commercial banks saw the largest decrease in dollar terms in their holdings of commercial/multifamily mortgage debt - a decrease of $8 billion or 1 percent.  Finance companies decreased their holdings of commercial/multifamily mortgages by $3 billion or 4 percent. Agency and GSE portfolios and MBS; CMBS, CDO, and other ABS issuers; life insurance companies; the Federal government; and state and local governments all increased their holdings.  

In percentage terms, the household sector saw the largest decrease in their holdings of commercial/multifamily mortgages, a drop of 5 percent. Agency and GSE portfolios and MBS saw their holdings increase one percent.

CHANGES IN MULTIFAMILY MORTGAGE DEBT OUTSTANDING

The $3 billion increase in multifamily mortgage debt outstanding between the fourth quarter 2010 and first quarter 2011 represents a 0.4 percent increase. In dollar terms, agency and GSE portfolios and MBS saw the largest increase in their holdings of multifamily mortgage debt, an increase of $4 billion, or 1 percent. State and local government increased their holdings of multifamily mortgage debt by $805 million, or 1 percent. Life insurance companies increased by $140 million, or 0.3 percent. CMBS, CDO, and other ABS issues saw the biggest decrease in their holdings of multifamily mortgage debt, by $688 million or 0.7 percent.

In percentage terms, agency and GSE portfolios and MBS recorded the biggest increase in their holdings of multifamily mortgages at 1 percent. Nonfinancial corporate business saw the biggest decrease at 40 percent.

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