The multifamily mortgage market continues to experience an increase in lending activity from a variety o
f participants. Although the GSEs and FHA have been the primary participants, there has also been renewed interest from portfolio lenders, banks and thrifts and commercial mortgage-backed securities issuers, according to new research from Fannie Mae.
Based on publicly-available company reports, Kim Betancourt, director multifamily economics and market research for Fannie Mae, said Fannie Mae and Freddie Mac saw the first increase in their total dollar volume of multifamily mortgage and securities acquisitions (purchases and securitizations) last year after three consecutive years of declines. In 2011, Fannie Mae acquired $24.4 billion in multifamily mortgage loans and Freddie Mac acquired $20.3 billion.
During 2011, there was also an increase in multifamily CMBS issuance, totaling 16 deals. The multifamily collateral underlying the securities consisted of traditional multifamily units, manufactured housing parks and mixed-use properties. Although the conduits saw an increase in activity earlier in the year, issuance stalled during the third quarter of 2011, partly exacerbated by the Standard & Poor”s ratings withdrawal on the
$1.48 billion Goldman Sachs-Citicorp CMBS deal.
While multifamily CMBS saw an increase last year, it is important to note that the segment is still far from its previous issuance levels. For example, multifamily CMBS issuance levels were approximately $36 billion annually in 2006 and 2007.
Life insurers had their second best year on record in multifamily in 2011, reaching $11.1 billion in commitments on 517 loans. This is a significant increase from $4.6 billion in commitments on 244 multifamily loans in 2010. In 2006, during the height of the last commercial real estate cycle, the life insurers had their best year on record in multifamily commitments, reaching $11.2 billion.
Throughout 2011, the life insurers were determinedly competitive in their pursuit of multifamily commitments. At $11.1 billion, multifamily represented nearly 25% of all life insurer commercial real estate loan commitments last year.
Banks and thrifts saw a significant increase in total net multifamily real estate holdings during 2011, with the FDIC reporting a net increase of $5.8 billion. Fourth-quarter 2011 net multifamily holdings rose by $1.6 billion, slightly higher than the $1.1 billion increase during the third-quarter, but still below the second quarter”s revised increase of $3.6 billion.
Betancourt said Fannie Mae expects the 2012 multifamily mortgage activity level to be similar to 2011 for a number of reasons, including interest rates likely remaining near or at current levels; low cap rates keeping apartment buyers and sellers in the market; apartment sales staying healthy due to an ongoing dearth of new apartment construction coming online resulting in fewer new competing apartment units; and continued improvement
in job growth.
As Lending Has Increased; Delinquencies Have Declined
Commercial and multifamily mortgage delinquency rates declined during the fourth quarter of 2011, and have fared better through the credit crunch and recession than any other major type of loan held by banks and thrifts, according to two reports released by the Mortgage Bankers Association (MBA).
During the fourth quarter, the 60 day delinquency rate for loans held in life company portfolios fell 0.02 percentage points to 0.17%. The 60 day delinquency rate for multifamily loans held or insured by Freddie Mac fell 0.11 percentage points to 0.22%. The 90 day delinquency rate for loans held
by FDIC-insured banks and thrifts fell 0.20% to 3.55%. The 30 day delinquency rate for loans held in commercial mortgage-backed securities (CMBS) fell 0.36 percentage points to 8.56%. The 60 day delinquency rate for multifamily loans held or insured by Fannie Mae increased 0.02 percentage points to 0.59%. These and other figures come from MBA”s Commercial Real Estate/Multifamily Finance Mortgage Delinquency Rates for Major Investor Groups report.
“Commercial and multifamily mortgage delinquency rates continue to stabilize and improve in parallel with the broader economy,” said Jamie Woodwell, MBA”s vice president of commercial real estate research. “And counter to what many have predicted, commercial mortgages have proved to be neither “the next shoe to drop” nor a “ticking time bomb” for the banking sector or the economy as a whole. The data show that, to the contrary, commercial and multifamily mortgages have generally performed well for most investor groups and have been the best performing loans held by banks and thrifts through this recession.”
Over the course of 2011, and throughout the credit crunch and recession, commercial and multifamily mortgages have had the lowest charge-off rates of any type of loan held by commercial banks and thrifts. In 2011, banks and thrifts charged off 0.84% of their balance of commercial mortgages and 0.74% of their multifamily mortgages, compared to charge-off rates of 1.22% and 1.24% respectively in 2010.
By contrast they charged off 0.89% of their balance of commercial and industrial loans, approximately 1.43% of their one-four family residential loans, 1.25% of other (non-credit card) loans to individuals, 3.33% of their construction loans and 5.45% of their credit card loans. Commercial and multifamily charge-off rates tend not to rise as rapidly as other charge-off rates during the onset of a recession and tend not to decline as rapidly as others during the onset of a recovery.
Click here to view the original article written by Mark Heschmeyer for CoStar.com on March 21, 2012.