Multifamily and commercial mortgage debt grew by $44.3 billion in the first quarter of 2018, a quarter-over-quarter increase of 1.4 percent, and the largest gain since before the Great Recession.  The total debt at the end of the quarter was $3.21 trillion with the multifamily portion increasing by 19.3 billion or 1.5 percent.  It was the third straight quarter that overall debt grew, the first time that has occurred since 2007.



The gains were reported by the Mortgage Bankers Association (MBA) which puts holders of the debt into five major categories. The largest group consists of banks and thrifts, which hold 40 percent of the total, $1.3 trillion.  The second group is agency and government sponsored enterprise (GSE) portfolios and mortgage-backed securities at 19 percent or $617 billion. Life insurance companies hold $471 billion, or 15 percent of the total, and commercial mortgage backed securities (CMBS), collateralized debt obligations (CDO) and other categories of asset-backed securities (ABS) hold $446 billion, or 14 percent.  There is a fifth category of miscellaneous investors including state and local governments, public and private pension funds, other insurance companies, etc. None of these have holdings exceeding 4 percent of the total.



The four largest groups all increased their holdings during the quarter. Commercial banks were up by $15 billion or 1.2 percent, agency/GSE/MBS holdings gained $10.8 billion or 1.8 percent, life insurance investments rose $9.1 billion or 2 percent, and the CMBS/CDO/ABS sector grew $5.6 billion or 0.6 percent. In percentage terms, other insurance companies saw the largest increase in their holdings of commercial/multifamily mortgages, an increase of 4.9 percent.  State and local government retirement funds saw their holdings decrease 1.7 percent.

"During the first three months of 2018, commercial and multifamily mortgage debt outstanding increased more than during any other Q1 since before the Great Recession," said Jamie Woodwell, MBA Vice President of Commercial Real Estate Research. "Interestingly, Q1 holdings grew more slowly this year than last among the three largest investor groups: banks, life insurance companies, and the GSEs. This year's increase was driven by the CMBS market, which added $6 billion of mortgages to its balances. This is a sharp contrast to the $21 billion decline over the same period in 2017.



The largest holder of the $1.3 trillion multifamily portion of the debt is the agency/GSE/MBS group with $617 billion, or 48 percent of the total. They are followed by banks and thrifts' 32 percent share which is valued at $411 billion. State and local government are third at $96 billion, or 8 percent.  The remainder is held by life insurance companies with 6 percent, CMBS/CDO/ABS issues with 3 percent and nonfarm noncorporate business at 1 percent.

The $19.3 billion increase in multifamily mortgage debt outstanding between the fourth quarter of 2017 and first quarter of 2018 represents a 1.5 percent increase.  In dollar terms, agency and GSE portfolios and MBS saw the largest increase in their holdings of multifamily mortgage debt, an increase of $10.8 billion, or 1.8 percent.  Commercial banks increased their holdings of multifamily mortgage debt by $7.1 billion, or 1.8 percent.  Life insurance companies increased by $1.4 billion, or 2.0 percent.  CMBS saw the largest decline in their holdings of multifamily mortgage debt, by $1.7 billion, or down 4.0 percent.



In percentage terms, finance companies recorded the largest increase in holdings of multifamily mortgages, at 5.0 percent.  Private pension funds saw the biggest decrease at 4.8 percent.

MBA's analysis is based on data from the Federal Reserve Board's Financial Accounts of the United States, the Federal Deposit Insurance Corporation's Quarterly Banking Profile and data from Wells Fargo Securities.