The level of commercial/multifamily mortgage debt outstanding increased by 0.7% over 4Q08 to $3.5 trillion, reported the Mortgage Bankers Association (MBA) on Monday.

The MBA based its analysis on the Federal Reserve Board's flow of funds data.  The total was an increase of $166 billion, equivalent to 5% from the end of 2007, according to the MBA CMBS, CDO and other ABS offerings comprise the second largest holders of commercial/multifamily mortgages, holding $746 billion, equivalent to 21% of the total. 

Meanwhile, life insurance companies hold $316 billion, or 9% of the total, and savings institutions hold $193 billion, or 5.5% of the total. 

The MBA said that GSEs and agency- and GSE- backed mortgage pools, including Fannie Mae, Freddie Mac and Ginnie Mae, hold $189 billion in whole loans in their own portfolios and an added $149 billion in multifamily loans that support the MBS these firms issue.  This makes up 10% of the total outstanding commercial/multifamily mortgages. The $3.5 trillion in commercial/multifamily mortgage debt outstanding recorded by the Federal Reserve rose from $23 billion in 3Q08, according to the MBA. 

Also, multifamily mortgage debt outstanding grew to $900 billion, an increase of $5.4 billion or 0.6% from in 3Q08. Commercial banks continue to hold the largest share of commercial/multifamily mortgages at $1.55 trillion, or 44% of the total. 

The MBA said that many of the commercial mortgage loans reported by commercial banks, however, should fall under commercial and industrial loans to which a piece of commercial property has been pledged as collateral. 

The MBA stated that it is the borrower's business income and not the income derived from the property's rents and leases that drive the underwriting, pricing as well as performance of these real estate loans. 

An MBA research policynote reported that among the top 10 commercial real estate bank lenders, 48% of their aggregate balance of commercial, non-multifamily real estate loans were related to owner-occupied properties, with only 52% that are actually income property loans.

"Counter to what many expected, investors increased their holdings of commercial and multifamily mortgages during the fourth quarter," said Jamie Woodwell, MBA's vice president of commercial real estate research. "Banks, thrifts, Fannie Mae, Freddie Mac, life insurance companies and other lenders extended additional credit to the market during the fourth quarter, lending more in new commercial and multifamily mortgages than they saw paid off or paid down on existing loans."

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