The amount of commercial and multifamily mortgage debt outstanding decreased in the third quarter, according to Mortgage Bankers Association analysis of the Federal Reserve Board's flow of funds. Mortgage debt outstanding for the two sectors combined dropped $42 billion, or 1.3%, to $3.2 trillion from the second quarter to the third quarter, according to the MBA. The trade organization attributed the decline to a decrease in construction loans held by banks and thrifts, as well as a decrease in commercial and multifamily mortgages held in commercial mortgage-backed securities. "The CMBS market is experiencing the fastest net run-off, followed by commercial banks, which are seeing most of their net declines in construction lending," said Jamie Woodwell, MBA's vice president of commercial real estate research. Commercial banks held the largest share of commercial/multifamily mortgages in the third quarter with 45%, or $1.43 trillion, which was down $30 billion from the second quarter. The MBA noted that many of the mortgage loans on the books were "commercial and industrial," and are therefore backed by commercial property as collateral. The second largest group of holders of commercial/multifamily mortgage loans in third quarter were issuers of CMBS, collateralized debt obligations and asset-backed securities at $640 billion, or 20% of the market. Agency, government-sponsored enterprise portfolios and mortgage-backed securities accounted for $317 billion, or 10% of the market share. The MBA expects this downward trend to persist. "The overall balance of commercial and multifamily mortgage debt outstanding is likely to continue to decline until commercial mortgage borrowing picks up significantly," Woodwell said. Household debt also decreased in the third quarter, according to the federal funds report. Write to Christine Ricciardi.