Multifamily, commercial debt passes $2.4 trillion

The level of commercial/multifamily outstanding mortgage debt surpassed $2.4 trillion in the second quarter of 2005, according to the Mortgage Bankers Association. According to a Sept. 26 MBA news release, commercial/ multifamily mortgage debt is growing at a pace that rivals previous records, based on an analysis of Federal Reserve Board Flow of Funds Data.

At the end of the second quarter, $2.4 trillion in commercial/multifamily mortgage debt outstanding was recorded by the Federal Reserve, an increase of $72.5 billion or 3.1 percent from the first quarter. The record for a quarterly increase is the $72.9 billion added in the fourth quarter of 2004. Multifamily mortgage debt outstanding stood at $630 billion at the end of the second quarter – an increase of $13 billion, or 2.2 percent, from the first quarter.

“Commercial banks and the commercial mortgage-backed securities markets have been leading the charge in channeling capital into commercial and multifamily mortgages,” said Doug Duncan, MBA’s chief economist and senior vice president of research and business development. “This sustained investment in commercial and multifamily real estate shows up in record origination volumes, record loan servicing volumes, record levels of (commercial mortgage-backed securities) issuance and, here, in record levels of commercial/multifamily mortgage debt outstanding.”

In August, MBA’s second-quarter Survey of Commercial/Multifamily Mortgage Bankers showed mortgage bankers’ origination volumes at its highest level since the survey began.

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 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 $1.05 trillion, or 43 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.

Looking just at multifamily mortgages, government-sponsored enterprises and the Government National Mortgage Association hold the largest share of multifamily mortgages, with $126 billion in federally related mortgage pools and $65 billion in their own portfolios – 30 percent of the total multifamily debt outstanding.

In dollar terms, commercial banks saw the largest increase in their holdings of multifamily mortgage debt - an increase of $6.2 billion, or 5 percent, which represents 46 percent of the total increase. Savings institutions saw an increase of $4.7 billion, or 5 percent, in their holdings. Commercial mortgage-backed securities issuers increased their holdings of multifamily mortgage debt by $4.1 billion, or 5 percent.

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