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Secondary Market For Multifamily Financing Continues To Develop.

Financing for apartment property acquisitions and development has been relatively freely available during the past several years. A healthy apartment market in a strong economy has provided the basis for greater access to acquisition and development financing. Multifamily mortgage debt outstanding totaled $411.1 billion at the end of least year. The levels increased at a 7.5 percent compounded annual growth rate since 1994 the point at which the apartment market bottomed out from its long, deep recession. Total multifamily mortgage debt last year rose even faster with a 10 percent increase. Data used for this article comes from the Federal Reserve Board's Flow of Funds series. This series covers financial assets and liabilities.

Distribution of the holders of multifamily mortgage debt has been changing during this period of growth. Commercial banks are now the leading holder of multifamily mortgages and continue to increase their market share. The fastest growing sectors are those related to the secondary market and securitization of mortgages. Combining them would produce the largest holding of mortgage debt with a total of $142.9 billion at the end of last year.

Commercial banks held a 19 percent share ($77.7 billion) of total multifamily mortgage debt at the end of last year. Their share was 13 percent in 1991 and 11 percent in 1985. Commercial banks are also still the largest source of construction financing of all types, including multifamily projects. Currently, there is no source of construction financing data. HUD had a data series that gave estimates of loan originations for construction and permanent financing by type of property and holder, but discontinued it after 1997 (due to budget cuts and difficulty in collecting the data).

An increased lending activity was one of the contributors to the move of commercial banks into the leading individual category of holders of multifamily mortgage debt. A sharp decline in savings institutions' share of the multifamily mortgage market is also a factor. Savings institutions held 44 percent of multifamily mortgages in 1985. Last year their share dropped to 15 percent. Savings institutions were still the third largest holder of multifamily mortgage debt last year. They held a total of $61.3 billion versus a total of $79.9 billion in 1991, when their share was 28 percent. Savings institutions reduced their holdings of multifamily mortgages largely in response to the problems they encountered with bad loans in the 1980s and a stricter regulatory environment. Savings institutions also have turned to the secondary mortgage markets to reduce risk in their portfolios.

The secondary market for multifamily mortgages is still relatively in its infancy. It is also a complex market in terms of isolating the level of activity. Much of the secondary market and securitization of mortgages had evolved from government agencies and government-sponsored enterprises. The government agencies include the Government National Mortgage Association (GNMA) and Farmers Home Administration. Government-sponsored enterprises involved in multifamily mortgages include Fannie Mae and the Federal Home Loan Mortgage Corporation (Freddie Mac).

Data for the secondary markets in the Flow of Funds mortgage sector data includes federally related mortgage pools, asset-backed securities and government-sponsored enterprises.

Federally related mortgage pools holdings include multifamily mortgages held by GNMA, FNMA, FHLMC and Farmers Home Administration that are financed in the capital markets. The financing occurs in multiple forms. One example is mortgages that are purchased with funds obtained by selling investors general debt securities; they are not backed by mortgages. Federally related mortgage pools rose to the second position in holders of multifamily mortgages. The holdings of multifamily mortgage in these pools totaled $66 billion last year. They have grown substantially from a $22.4 billion level in 1994.
 MULTIFAMILY MORTGAGE DEBT (billions of dollars)

 Amount Outstanding at End
 of Year

 1991 1992 1993

Total Assets 281.7 269.3 266.2
Commercial banking 35.1 36.2 37.0
Savings institutions 79.9 698.0 67.4
Federally related mortgage pools 26.1 23.8 22.5
State and local governments 41.7 424.0 42.8
ABS issuers (Asset Backed Securities) 3.2 66.0 8.4
Life insurance companies 29.3 272.0 27.5
Government sponsored enterprises 14.2 15.8 17.5
Federal government 31.9 27.6 246.0
Nonfarm noncorporate business 8.4 8.4 7.0
State and local govt. retirement funds 4.8 4.2 4.1
Mortgage companies 2.7 3.0 3.1
Finance companies 0.0 0.0 0.0
Nonfinancial corporate business 6.0 0.4 0.5
REITs 2.2 2.2 1.9
Private pension funds 0.9 0.7 0.7
Household sector 0.8 1.1 1.4

Total liabilities 281.7 269.3 266.2
Nonfinancial corporate business 18.8 19.3 19.9
Nonfarm noncorporate business 261.3 248.2 243.4
REITs 1.6 1.8 3.0

 Amount Outstanding at End
 of Year

 1994 1995 1996

Total Assets 265.8 273.4 289.2
Commercial banking 37.9 42.5 45.5
Savings institutions 64.3 62.0 61.6
Federally related mortgage pools 22.4 26.9 32.5
State and local governments 43.5 44.1 459.0
ABS issuers (Asset Backed Securities) 99.0 12.0 16.1
Life insurance companies 27.8 28.7 30.8
Government sponsored enterprises 18.4 19.0 18.6
Federal government 22.0 17.3 14.8
Nonfarm noncorporate business 7.0 7.9 7.0
State and local govt. retirement funds 4.3 4.5 4.7
Mortgage companies 3.1 4.2 4.1
Finance companies 0.0 0.0 3.1
Nonfinancial corporate business 0.9 0.1 0.8
REITs 2.1 1.6 1.2
Private pension funds 0.9 1.0 1.0
Household sector 1.3 1.6 1.5

Total liabilities 265.8 273.4 289.2
Nonfinancial corporate business 20.5 21.1 21.7
Nonfarm noncorporate business 239.1 244.4 256.9
REITs 6.2 7.9 10.5

 Amount Outstanding at End
 of Year

 1997 1998 1999

Total Assets 302.5 329.5 372.2
Commercial banking 49.7 52.9 66.0
Savings institutions 59.5 57.0 59.4
Federally related mortgage pools 37.8 48.3 57.5
State and local governments 46.5 47.4 48.3
ABS issuers (Asset Backed Securities) 21.2 33.5 4.7
Life insurance companies 30.4 31.5 32.6
Government sponsored enterprises 17.3 18.1 22.7
Federal government 13.9 13.6 13.6
Nonfarm noncorporate business 7.0 7.0 7.3
State and local govt. retirement funds 5.0 5.2 5.5
Mortgage companies 5.2 5.3 5.3
Finance companies 29.0 2.7 5.1
Nonfinancial corporate business 4.0 2.0 2.6
REITs 2.1 2.1 1.6
Private pension funds 1.2 0.4 1.5
Household sector 1.5 1.5 1.4

Total liabilities 302.5 329.5 372.2
Nonfinancial corporate business 22.5 23.5 24.7
Nonfarm noncorporate business 264.5 282.4 322.1
REITs 15.4 23.6 25.3

 Change 1999-00

 2000 $'s %

Total Assets 411.1 38.9 9.5%
Commercial banking 77.7 1.7 15.1%
Savings institutions 61.3 1.9 3.1%
Federally related mortgage pools 66.0 8.5 12.9%
State and local governments 49.3 1.0 2.0%
ABS issuers (Asset Backed Securities) 48.7 7.0 14.4%
Life insurance companies 33.5 0.9 2.7%
Government sponsored enterprises 28.2 5.5 19.5%
Federal government 13.9 0.3 2.2%
Nonfarm noncorporate business 8.0 0.7 8.8%
State and local govt. retirement funds 6.0 0.5 8.3%
Mortgage companies 5.4 0.1 1.9%
Finance companies 6.1 1.0 16.4%
Nonfinancial corporate business 3.2 0.6 18.8%
REITs 1.0 -0.6 -60.0%
Private pension funds 1.3 0.2 -15.4%
Household sector 1.4 0.0 0.0%

Total liabilities 411.1 38.9 9.5%
Nonfinancial corporate business 25.9 1.2 4.6%
Nonfarm noncorporate business 357.4 35.3 9.9%
REITs 277.0 2.4 8.7%

 Change 1991-00

 $'s %

Total Assets 129.4 45.9%
Commercial banking 42.6 121.4%
Savings institutions -18.6 -23.3%
Federally related mortgage pools 39.9 152.9%
State and local governments 7.6 18.2%
ABS issuers (Asset Backed Securities) 45.5 1421.9%
Life insurance companies 4.2 14.3%
Government sponsored enterprises 14.0 98.6%
Federal government -18.0 -56.4%
Nonfarm noncorporate business 0.4 -4.8%
State and local govt. retirement funds 12.0 25.0%
Mortgage companies 2.7 100.0%
Finance companies 6.1 nm
Nonfinancial corporate business 2.6 433.3%
REITs -1.2 -54.5%
Private pension funds 0.4 44.4%
Household sector 6.0 75.0%

Total liabilities 129.4 45.9%
Nonfinancial corporate business 7.1 37.8%
Nonfarm noncorporate business 96.1 36.8%
REITs 26.1 1631.3%



The mortgage pool data includes those mortgages that are used as collateral for federally related agency-issued collaterized mortgage obligations (CMOs) and privately issued CMOs. CMOs are made up of pools of mortgages that are used as collateral for some other debt security. The cash flows off of the collateral are used to pay off the obligations of the new debt security. The agent that issues the collateralized debt makes money by selling the new debt at a price higher than the purchase price of the collateral. The reason that the new security has a higher price is that the cash flows off of that security can be tailored to the needs of the purchaser of the new debt security. There are many forms of CMOs. Multifamily CMOs data, shown in Asset Backed Securities, totaled $48.7 billion last year. This was a 1,422 percent rise from the $3.2 billion level that existed in 1991.

Development of secondary markets for multifamily mortgages help to make the apartment financing market more liquid and encourages greater investment. Multifamily mortgage financing will continue to see even more development of its secondary markets.

Activity in one other sector of the multifamily mortgage debt market is worth noting. Life insurance companies last year held $33.5 billion of multifamily mortgages. Their share of the market at 8 percent is down from the 10 percent share that was maintained for a relatively long period of time.

REITs became a major factor in apartment financing in the second half of the 1990s. Capturing their impact on the apartment market in the Flow of Funds data requires looking at their mortgage debt on the liabilities side of the ledger. Mortgage REITs hold little multifamily mortgage debt, $1 billion last year. The Equity REITs that maintain and acquire interest apartment properties had $27.7 billion in multifamily mortgage debt outstanding at the end of last year. This was a 1,631 percent increase over the 1991 level.

Robert J. Sheehan is President of Regis J. Sheehan Data and Forecasting Services in McLean, Va. and serves as NAA's Consulting Economist. He can be reached at 703/893-9185 or by e-mail at gdad@erols.com.
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Author:SHEEHAN, ROBERT J.
Publication:Units
Date:Jun 1, 2001
Words:1893
Previous Article:Rental Housing Market and Economic Update--March 2001.
Next Article:Balanced Housing Policy.


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