CMF Mortgages Best Performing - Mortgage Bankers Association

MBA Research
DATANOTES
Commercial and Multifamily Mortgages
Have Been the Best Performing Bank Loans
of the Credit Crunch and Great Recession
Commercial and multifamily mortgages have fared better through the credit crunch and
recession than any other major type of loan held by banks and thrifts. Commercial and
multifamily delinquency rates remain below those of the overall bank and thrift portfolios,
and the charge-off rates of commercial and multifamily mortgages have been and continue
to be lower than any other loan type.
Bac kg r o u n d
L oa n H o l d i n g s
Commercial banks and thrifts invest in and hold a variety of assets
Of the various types of loans and leases, one- to four-family resi-
to earn income on the money raised through checking accounts,
dential loans (including home equity loans) make up the largest
savings accounts, certificates of deposits, bank debt and other
share of banks’ loan holdings ($2.5 trillion or 33 percent of the
liabilities. A key component of these assets (54 percent of total
total), followed by commercial and industrial loans ($1.3 trillion
assets at the end of 2011), is loans and leases — including one-
or 18 percent of the total) and commercial mortgages ($1.1 trillion
to four-family residential mortgages, home equity loans, credit
or 14 percent of the total).1 At $218 billion, multifamily mortgages
cards, non-credit card consumer loans, commercial mortgages,
account for three percent of bank-held loans and leases. Over the
multifamily mortgages, construction loans and commercial and
course of the recession, the credit crunch and headlines about the
industrial loans.
© 2012 Mortgage Bankers Association (MBA). All rights reserved, except as explicitly granted.
Copying or other redistribution of this publication — in whole or in part — violates U.S.
copyright law as well as any applicable MBA terms of use. Activities that are not permitted
without MBA’s advance permission include photocopying, faxing, excerpting, forwarding
electronically and sharing of online access. No part of the data may be reproduced, stored in a
retrieval system, transmitted or redistributed in any form or by any means.
11271
1 Note that this total includes loans backed by both owner-occupied properties and by
income-producing properties. The owner-occupied property loans ($483 billion) are in
essence commercial and industrial loans to which a property has been pledged as additional
collateral. The income-producing property loans ($575 billion) are driven by commercial
real estate market fundamentals such as vacancies and rental rates and more directly
reflects leased office, retail, warehouse and other space that is traditionally considered
commercial real estate.
lack of capital available for commercial real estate, the amount of
Figure 1. Aggregate Bank & Thrift Balances: 2007 through 2011
commercial and multifamily mortgage debt extended and held by
banks actually remained remarkably steady (see Figure 1).
$ Millions
L oa n P e r f o r m a n c e
Single-family
Mortgages
Looking across the various loans and leases held by banks and
thrifts, commercial and multifamily mortgages finished 2011 with
$2,481,342
30+ day delinquency rates lower than the average for all loans and
Commercial &
Industrial Loans
leases held by these institutions. At the end of the fourth quarter,
5.44 percent of the balance of all bank and thrift loans were 30 or
$1,346,038
more days past due. Commercial mortgages had a 30+ day delinCommercial
Mortgages
quency rate of just 4.63 percent, down from 5.32 percent at the
end of 2010, and multifamily mortgages recorded a rate of 3.25
$1,059,232
percent, down from 4.89 percent. Construction loans, driven by
poor performance among single-family-related land and construc-
Credit Cards*
tion loans, had the highest delinquency rate, at 14.81 percent.
$687,753
Single-family mortgages had the second highest rate, at 9.63
Other Loans to
Individuals
$619,868
Constructions
Loans
2007: Q4
percent. Commercial and industrial loans had a delinquency rate
2008: Q4
of 1.73 percent, credit cards had a delinquency rate of 3.27 per-
2009: Q4
cent and other loans to individuals had a delinquency rate of 3.01
2010: Q4
percent (see Figure 2).
2011: Q4
$240,010
As with other types of loans, the delinquency rate for commercial
Source: MBA and FDIC
and multifamily mortgages decreased over the course of 2010.
Multifamily
Mortgages
Delinquency rates on commercial and multifamily mortgages fell
$218,490
0
$500,000
from respective highs of 5.65 percent and 5.93 percent during the
first quarter of 2010 to 4.63 percent and 3.25 percent respectively,
$1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000
at year end.
* Large increases in credit card balance in 2010 driven by FAS 166/167
requirement to recognize certain securitized assets on bank balance sheets
Figure 2. Percent of Loan Balance 30+ Days Delinquent or in Nonaccrual
25
Credit Cards
Construction Loans
Other Loans to Individuals
Single-family Mortgages
Commercial Mortgages
Commercial & Industrial Loans
Multifamily Mortgages
All Bank / Thrift Loans and Leases
20
15
Source: MBA and FDIC
10
2
2011:Q4
2010:Q4
2009:Q4
2008:Q4
2007:Q4
2006:Q4
2005:Q4
2004:Q4
2003:Q4
2002:Q4
2001:Q4
2000:Q4
1999:Q4
1998:Q4
1997:Q4
1996:Q4
1995:Q4
1994:Q4
1993:Q4
1992:Q4
0
1991:Q4
5
C h a r g e- O f f s
Figure 3. Bank & Thrift Net Charge-off Rates: 2007 through 2011
As banks and thrifts recognize troubled loans as uncollectible,
they charge them off — removing the uncollectible loan balances
from their balance sheets and recognizing the losses in their income statements. While delinquency rates represent the share
Credit Cards
of loans that are not paying on time, charge-off rates represent
a bank’s assessment of the share of the outstanding loan balance
they are unlikely to get back.
Construction
Loans
Commercial and multifamily mortgages provide security to their
lenders in that a) even when under stress, the commercial propSingle-family
Mortgages
erty generally continues to provide some level of income to help
pay its debt service, and b) for every loan there is a real, tangible
asset pledged as collateral should the loan become delinquent. For
these reasons, commercial and multifamily mortgages have his-
Other Loans to
Individuals
torically not experienced the same rate of losses as most other
types of loans. This is evident in the charge-off rates experienced
by banks and thrifts.
Commercial &
Industrial Loans
2007: Q4
Commercial
Mortgages
2008: Q4
Over the course of 2011, and throughout the credit crunch and
2009: Q4
recession, commercial and multifamily mortgages have had the
2010: Q4
lowest charge-off rates of any type of loan held by commercial
2011: Q4
banks and thrifts. In 2011, banks and thrifts charged off 0.84 percent of their balance of commercial mortgages and 0.74 percent
Source: MBA and FDIC
of their multifamily mortgages, compared to charge-off rates of
Multifamily
Mortgages
1.22 percent and 1.24 percent respectively in 2010 (see Figure 3).
0%
2%
4%
6%
8%
10%
By contrast they charged off 0.89 percent of their balance of
12%
commercial and industrial loans, approximately 1.43 percent of
their one- to four-family residential loans, 1.25 percent of other (non-credit card) loans to individuals, 3.33 percent of their
Figure 4. Annualized Net Charge-off Rates of Bank / Thrift Loans
14%
Credit Cards
Construction Loans
Other Loans to Individuals
Single-family Mortgages
Commercial Mortgages
Commercial & Industrial Loans
Multifamily Mortgages
12%
10%
8%
6%
4%
2%
0%
Source: MBA and FDIC
3
2011:Q4
2010:Q4
2009:Q4
2008:Q4
2007:Q4
2006:Q4
2005:Q4
2004:Q4
2003:Q4
2002:Q4
2001:Q4
2000:Q4
1999:Q4
1998:Q4
1997:Q4
1996:Q4
1995:Q4
1994:Q4
1993:Q4
1992:Q4
1991:Q4
1990:Q4
-2%
Figure 5. Aggregate Net Bank & Thrift Charge-offs: 2007 through 2011
$ Millions
$200,000
$180,000
$160,000
$140,000
$120,000
$100,000
Source: MBA and FDIC
$80,000
$60,000
$40,000
$20,000
$0
$180,736
$177,949
$87,614
$80,648
$65,231
$35,134
$7,807
Single-family
Mortgages
Credit
Cards
Commercial
& Industrial Loans
Construction
Loans
Other Loans to
Individuals
Commercial
Mortgages
Multifamily
Mortgages
construction loans and 5.45 percent of their credit card loans.
Co n c lu s i o n
Commercial and multifamily charge-off rates tend not to rise as
As noted in our 2009, 2010 and 2011 DataNotes on this same top-
rapidly as other charge-off rates during the onset of a recession
ic, commercial and multifamily mortgages are an important part
and tend not to decline as rapidly as others during the onset of a
of the holdings of commercial banks and thrifts. Like other parts
recovery (see Figure 4).
of the economy, the performance of commercial and multifamily
mortgages has been negatively impacted by job losses, consumer
I n aggregate dollars, the charge-offs of commercial and multifam-
restraint, manufacturing declines and reduced household forma-
ily mortgages by banks and thrifts also remained far below those
tion. When compared to other parts of the economy and other
of other loan types during the recession. Over the course of 2007,
types of loans at banks and thrifts, however, the relatively stable
2008, 2009, 2010 and 2011, banks and thrifts have charged off
performance and low charge-offs of commercial and multifamily
$181 billion of single-family mortgages, $178 billion of credit card
mortgages have been a net positive to these institutions through
loans, $88 billion of commercial and industrial loans, $81 billion of
the recent recession.
construction loans and $65 billion of other loans to individuals. By
contrast, over the same period, they have had to charge off only
$35 billion in commercial mortgages and $8 billion in multifamily
mortgages (see Figure 5).
A b o u t R e s e a r c h Data N o t e s
Author:
Jamie Woodwell, Vice President of Commercial
Real Estate Research, Mortgage Bankers Association
Any questions or for more information, please contact
Jamie at [email protected].
Research DataNotes are a series produced by members of
MBA’s research and economics group designed to explain and
explore technical aspects of the real estate finance industry.
4