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Investors Increase Commercial Mortgage Holdings in Second Quarter

Commercial and multifamily mortgage debt outstanding rose 1.5% in the second quarter, to $3.44 trillion, the Mortgage Bankers Association reports, based on an analysis of the Federal Reserve Board Flow of Funds data.

Amid the current credit crunch turmoil, commercial and multifamily mortgage debt outstanding gained $51.3 billion from the first quarter of 2008. Multifamily mortgage debt outstanding alone grew to $875 billion, an increase of $16.3 billion or 1.9% from first quarter levels.

"Despite the persistent credit crunch, investors increased their holdings of commercial/multifamily mortgages in the second quarter," says Jamie Woodwell, MBA's Vice President of Commercial Real Estate Research. "The only major investor group to see a decline in their holdings was the commercial mortgage-backed securities (CMBS) market, which has been most profoundly affected by the credit crunch. Other investor groups including commercial banks, life insurance companies, thrifts and the government-sponsored enterprises (GSEs) increased their holdings over the quarter."

Commercial banks continue to hold the largest share of commercial/multifamily mortgages, at $1.46 trillion, or 43% of the total. However, the commercial mortgage loan total reported by commercial banks includes "commercial and industrial" loans backed by commercial property that has been pledged as collateral for a business loan. MBA has found that among the top 10 commercial real estate bank lenders, as much as 48% of their aggregate balance of commercial real estate loans could be related to owner-occupied properties.

The second largest holdings of commercial and multifamily mortgages are in the CMBS, collateralized debt obligation (CDO) and other asset-backed security (ABS) issuers category, which accounts for $762 billion, or 22% of the total. Life insurance companies hold $313 billion, or 9% of the total, and savings institutions hold $230 billion, or 7% of the total. The GSEs and agency - and GSE - backed mortgage pools (including Fannie Mae, Freddie Mac and Ginnie Mae) hold $146 billion in multifamily loans that support the mortgage-backed securities they issue and an additional $168 billion whole loans in their own portfolios, for a total share of 9% of outstanding commercial and multifamily mortgages.

Considering only multifamily mortgages, the GSEs and Ginnie Mae hold the largest share, accounting for 36% of the total multifamily debt outstanding. They are followed by commercial banks with $176 billion, or 20% of the total. CMBS, CDO and other ABS issuers hold $118 billion, or 14% of the total; savings institutions account for $97 billion, or 11% of the total. State and local governments hold $70 billion, or 8% of the total; and life insurance companies hold $50 billion, or 6% of the total.

In the second quarter, commercial banks saw the largest increase in dollar terms in their holdings of commercial and multifamily mortgage debt - an increase of $35 billion, or 3%, which represents 69% of the total $51 billion increase. Life insurance companies increased their holdings of commercial and multifamily mortgages by $4 billion, or 8%. GSEs increased their holdings of commercial and multifamily mortgages by $10 billion, or 6% - representing 20% of the net increase in commercial and multifamily mortgage debt outstanding. Agency and GSE-backed mortgage pools increased their holdings of multifamily mortgages by $3 billion, or 2.3%.

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