Feeling the Pinch in Commercial MBS
Commercial and multi-family mortgage origination volume in the first quarter slipped 26% from Q408 and is down 70% from the year-ago period, according to a survey released Wednesday by the Mortgage Bankers Association (MBA). The data illustrates the nation's credit woes are not isolated to residential mortgages. A slide in commercial mortgage-backed security (CMBS) conduit loans led the overall decline in origination, the MBA said. Conduits for CMBS plunged 96% since the same time last year. Once again, CMBS lags behind the residential mortgage market, suggesting the worst may lie ahead for the commercial market. Investors reduced their participation even since last quarter, from an 83% decrease in conduits for CMBS, to a 37% drop in commercial bank portfolios. The government-sponsored entities' volume fell by 17% while life insurance companies decreased 7% in Q109. Multi-family origination slipped 39% from the fourth quarter and held 61% below levels seen at the same time the previous year. "In the first quarter of 2009 we saw the effects of the continued recession coupled with little demand from borrowers and a constrained supply from lenders as a result of the credit crunch," said Jamie Woodwell, commercial real estate researcher at MBA. CMBS weighed on origination in the quarter, but the market may have found an ally in federal regulators. The Federal Reserve on May 1 announced CMBS and securities backed by insurance premium finance loans as of June are eligible collateral for participation in the Term Asset-Backed Loan Facility (TALF). The additions are aimed at stimulating lending in the commercial real estate and small business sector by allowing private investors to purchase securities with a matching government investment. “The CMBS market came to a standstill in mid-2008,” Fed officials said in a media statement. “The inclusion of CMBS as eligible collateral for TALF loans will help prevent defaults on economically viable commercial properties, increase the capacity of current holders of maturing mortgages to make additional loans, and facilitate the sale of distressed properties.” Write to Diana Golobay.