A Mortgage Bankers Association (MBA) report on commercial and multifamily mortgage debt holdings shows that banks and thrifts again had by far the largest net increase in multifamily mortgage holdings in Q3 2022.
The MBA reported that multifamily mortgage debt outstanding rose by $36.1 billion in Q3, a slightly higher increase than in Q2. Total multifamily debt reached a level of $1.925 trillion. Compared to its year-earlier level, multifamily debt was up $158 billion (8.9 percent).
The total of all commercial mortgage debt, including multifamily debt, outstanding at the end of Q3 rose 1.6 percent from its Q2 2022 level to $4.454 trillion. Multifamily mortgage debt represented 43.2 percent of commercial mortgage debt outstanding.
In an earlier report, the MBA had reported that multifamily mortgage originations had decreased in Q3, with the Q3 2022 originations index reported to be down 16 percent from the level of the index in Q3 2021.
Assessing market shares
The shares of multifamily mortgage debt held by various classes of suppliers are shown in the first chart, below.
Of the increase in mortgage debt outstanding in the quarter, $7.5 billion, was held by “Agency and GSE portfolios and MBS”. These are agencies, like the Federal Housing Administration and Government Sponsored Enterprises (GSEs) like Fannie Mae and Freddie Mac, who buy up mortgages and sell some of the debt as Mortgage-Backed Securities (MBS). At the end of Q3, the GSEs holdings of multifamily debt fell to 48.6 percent of the total outstanding. The GSEs’ share of this debt has been trending lower since Q1 2021 when it reached 50.1 percent.
Banks and Thrifts, the second largest holders of multifamily mortgages, increased their mortgage holdings by $26.6 billion in Q3. This represented 74 percent of the increase in multifamily debt outstanding. Banks and thrifts increased their share of multifamily debt to 30.3 percent in Q3.
Life Insurance companies increased their direct holdings of multifamily mortgage debt by $2.0 billion in the quarter, raising their holdings to $189.3 billion. Their share of total mortgage debt outstanding fell slightly to 9.8 percent in the quarter. However, this figure does not account for the mortgages these companies hold through commercial mortgage-backed securities (CMBS).
While the three largest categories of lenders listed above increased their holdings of debt in Q3, 6 of the 9 other categories of lenders identified in the report reduced their holdings.
State and local governments held 5.8 percent of outstanding multifamily mortgage debt at the end of Q3. They increased their holdings by $900 million to a total of $111 billion at the end of the quarter.
CMBS, CDO (collateralized debt obligations) and other ABS (asset backed securities) issuers decreased their holdings of multifamily mortgage debt in Q3 by $186 million. Their share of multifamily debt outstanding fell to 3.5 percent.
The next chart, below, shows the quarterly changes in multifamily mortgage holdings of the 6 largest classes of lenders since Q1 2020. It shows that the GSEs dominated lending in 2020 when uncertainty caused by the pandemic related shutdowns roiled the economy. It also shows that banks have become the dominant source for net increased multifamily lending over the past few quarters.
Who’s growing their share?
The next chart, below, plots the current share of multifamily mortgage debt outstanding for a given class of lender alongside that class of lender’s share of net new mortgage debt outstanding in Q3. When the latter share is greater than the former, that class of lender is increasing its share of the multifamily debt market.
The chart shows that growth in holdings of banks was a much greater share of the overall growth in debt outstanding than the banks’ current share of that debt. By contrast, the GSEs increased their net holdings at a rate well below their share of current holdings, reducing their relative share of multifamily mortgage debt outstanding.
CMBS, CDO and other ABS lenders aggressively increased their holdings of multifamily mortgage debt between Q3 2021 and Q1 2022. However, they became substantial net sellers in Q2 2022. They were net sellers again in Q3, but they only reduced their holding by 0.3 percent.
The report does not cover loans for acquisition, development or construction, or loans collateralized by owner-occupied commercial properties. The full report also includes information on mortgage debt outstanding for other commercial property types. The full report can be found here.