Commercial and Multifamily Mortgage Debt in U.S. Dipped 2.7% in 2010; Driven by CMBS Declines

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According to the Mortgage Bankers Association (MBA) analysis of the Federal Reserve Board Flow of Funds data, the level of commercial/multifamily mortgage debt outstanding decreased by 0.5 percent in the fourth quarter of 2010, to $2.4 trillion. On a year-over-year basis, the amount of mortgage debt outstanding at the end of 2010 was $67 billion lower than at the end of 2009, a decline of 2.7 percent.

Beginning with the fourth quarter 2010 release, MBA's analysis more accurately reflects 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 recorded by the Federal Reserve was $12 billion lower than the third quarter 2010 figure. Multifamily mortgage debt outstanding rose to $798 billion, an increase of $3 billion or 0.3 percent from the third quarter.

"The change in the balance of commercial and multifamily mortgage debt outstanding was driven by a decline in the amount of CMBS loans outstanding," said Jamie Woodwell, MBA's Vice President of Commercial Real Estate Research.  "The $50 billion dollars of CMBS loans that paid-off, paid down or were resolved during the year represented 75 percent of the total decline.  Strong originations by FHA, Fannie Mae and Freddie Mac led to an increase in the level of multifamily mortgages outstanding."

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 (CDOs) 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, $802 billion, or 34 percent of the total.

CMBS, CDO and other ABS issues are the second largest holders of commercial/multifamily mortgages, holding $621 billion, or 26 percent of the total. Agency and GSE portfolios and MBS hold $325 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, the agency and GSE portfolios and MBS hold the largest share of multifamily mortgages, with $325 billion or 41 percent of the total multifamily debt outstanding.  They are followed by banks and thrifts with $215 billion, or 27 percent of the total.  CMBS, CDO and other ABS issuers hold $99 billion, or 12 percent of the total; state and local governments hold $74 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 fourth quarter of 2010, CMBS, CDO and other ABS issues saw the largest decrease in dollar terms in their holdings of commercial/multifamily mortgage debt - a decrease of $15 billion or 2 percent.  Finance companies decreased their holdings of commercial/multifamily mortgages by $2 billion or 4 percent.  The household sector decreased its holdings of commercial/multifamily mortgages by $799 million or 5 percent.

In percentage terms, nonfinancial corporate business saw the largest decrease in their holdings of commercial/multifamily mortgages, a drop of 10 percent.  The household sector saw their holdings decrease by 5 percent.

CHANGES IN MULTIFAMILY MORTGAGE DEBT OUTSTANDING

The $3 billion increase in multifamily mortgage debt outstanding between the third quarter and fourth quarter 2010 represents a 0.3 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 $7 billion, or 2 percent.  State and local government increased their holdings of multifamily mortgage debt by $661 million, or 1 percent.  The federal government increased by $34 million, or 0.2 percent.  CMBS, CDO, and other ABS issues saw the biggest decrease in their holdings of multifamily mortgage debt, by $4 billion or 4 percent.

In percentage terms, agency and GSE portfolios and MBS recorded the biggest increase in their holdings of multifamily mortgages at 2 percent.  Nonfinancial corporate business saw the biggest decrease at 10 percent.

CHANGES IN COMMERCIAL/MULTIFAMILY MORTGAGE DEBT OUTSTANDING DURING 2010

Between December 2009 and December 2010, CMBS, CDO and other ABS issues saw the largest decrease in dollar terms in their holdings of commercial/multifamily mortgage debt - a decrease of $50 billion, or 8 percent. Banks and thrifts decreased their holdings of commercial/multifamily mortgages by $11 billion or 1 percent. Agency and GSE portfolios and MBS experienced a net increase of $15 billion or 5 percent.

In percentage terms, nonfinancial corporate business saw the biggest decrease in their holdings of commercial/multifamily mortgages, a drop of 30 percent.  Private pension funds saw the biggest increase of 11 percent.

The $7 billion increase in multifamily mortgage debt outstanding during 2010 represents a 0.9 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 $15 billion or 5 percent. State and local government saw an increase of $2 billion in their holdings or 3 percent.  Banks and thrifts saw an increase of $2 billion in their holdings or 1 percent.

In percentage terms, private pension funds recorded the biggest increase in their holdings of multifamily mortgages, 16 percent, while nonfinancial corporate business saw the biggest decrease, 30 percent.

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