The level of commercial/multifamily mortgage debt outstanding grew by 2.8 percent in the second quarter, reaching $2.76 trillion, according to the Mortgage Bankers Association analysis of the Federal Reserve Board Flow of Funds data.
At the end of second-quarter 2006, the Federal Reserve recorded $2.76 trillion in commercial/multifamily mortgage debt outstanding, an increase of $76.6 billion from fourth-quarter 2005. Multifamily mortgage debt outstanding grew to $703 billion at the end of the second quarter, up by $9.4 billion, or 1.3 percent, from the first quarter.
“The commercial/multifamily mortgage market has become a staple of the finance industry,” said Doug Duncan, MBA’s chief economist and senior vice president of Research and Business Development. “Borrowers continue to find an array of products geared at meeting their diverse needs, and investors continue to find fixed-income products with a strong underpinning and increasingly liquid markets. With mortgage bankers’ originations up 24 percent in the first half of the year and servicing volumes at record levels, the industry is more efficient than ever at connecting real estate with capital.”
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 which appear in the Federal Reserve data under Life Insurance Companies) and in commercial mortgage-backed securities (CMBS) for which the security issuers and trustees hold the note (and which appear in the Federal Reserve data under CMBS issuers).
Commercial banks continue to hold the largest share of commercial/multifamily mortgages, with more than $1.2 trillion, or 44 percent 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, and it is the borrower’s business income — not the income derived from the property’s rents and leases — that drives the underwriting, pricing and performance of the loan. Since the other loans are income-property loans, meaning that the income primarily comes from rents, the commercial bank numbers are not comparable.
CMBS pools are the second-largest holders of commercial/multifamily mortgages, holding $560 billion, or 20 percent of the total. Life insurance companies hold $271 billion, or 10 percent of the total, and savings institutions hold $207 billion, or 8 percent of the total. Government Sponsored-Enterprises (GSEs) and federally related mortgage pools, including Fannie Mae, Freddie Mac and Ginnie Mae, hold $135 billion in multifamily loans that support the mortgage-backed securities they issue (referred to here as federally related mortgage pools) and an additional $78 billion “whole” loans in their own portfolios, for a total share of 8 percent of outstanding commercial/multifamily mortgages. (As noted above, many life insurance companies, banks and the GSEs also purchase and hold a large number of CMBS issues. These loans appear in the CMBS category referenced above.)
Looking just at multifamily mortgages, the GSEs and Ginnie Mae hold the largest share of multifamily mortgages, with $135 billion in federally related mortgage pools and $78 billion in their own portfolios — 30 percent of the total multifamily debt outstanding. They are followed by commercial banks with $147 billion, or 21 percent of the total; savings institutions with $102 billion, or 15 percent of the total; CMBS issuers with $94 billion, or 13 percent of the total; state and local governments with $60 billion, or 9 percent of the total; and life insurance companies with $43 billion, or 6 percent of the total.
In the second quarter of 2006, commercial banks saw the largest increase in dollar terms in their holdings of commercial/multifamily mortgage debt — an increase of $39 billion, or 3 percent, which represents 51 percent of the total $76.6 billion increase. CMBS issuers increased their holdings of commercial/multifamily mortgages by $22 billion, or 4 percent — representing 29 percent of the net increase in commercial/multifamily mortgage debt outstanding.
In percentage terms, CMBS issuers saw the biggest increase in their holdings of commercial/multifamily mortgages — a jump of 4 percent — while private pension funds saw the biggest drop (a net change of -0.9 percent).
The $9.4 billion increase in multifamily mortgage debt outstanding between the first and second quarters represents a 1.3 percent increase. In dollar terms, CMBS issuers saw the largest increase in their holdings of multifamily mortgage debt — an increase of $2.3 billion, or 2.6 percent, which represents 25 percent of the total increase. Federally related mortgage pools increased their holdings of multifamily mortgage debt by $2.2 billion, or 1.7 percent.
In percentage terms, CMBS issuers recorded the biggest increase in their holdings of multifamily mortgages, 2.6 percent, while finance companies saw the biggest drop, -4.9 percent.
The Mortgage Bankers Association is a national association representing the real estate finance industry.
