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Decline in Commercial Originations Accelerates

Decline in Commercial Originations AcceleratesQ4 fundings down 80% from 2007

February 11, 2009

By staff

A deterioration in commercial mortgage production gained steam in the fourth quarter. Fundings for health care properties fared the best, while hotel financing and loans originated for commercial mortgage-backed securities have virtually disappeared. The government sponsored housing enterprises saw the lowest decline among lender types.Commercial mortgage originations last year fell 60 percent from 2007, the Mortgage Bankers Association reported Tuesday.

Commercial production during the last quarter of 2008 tumbled 80 percent from a year earlier. By comparison, commercial volume during the fourth-quarter 2007 dropped 16 percent from the same quarter in 2006.

Fourth-quarter activity on hotel financing almost disappeared — tumbling 99 percent from the final quarter of 2007. Health-care property volume saw the smallest decline from 2007 among all property types: 47 percent. Originations for retail properties were down 82 percent, while office property business was down 72 percent, industrial originations were off more than three-quarters and multifamily lending dropped 62 percent.

Conduit transactions saw the steepest decline from the fourth-quarter 2007, at 98 percent. Fannie and Freddie activity fared the best with a 15 percent decline. Commercial banks funded 86 percent less, and life insurance volume was down 73 percent.

Fourth-quarter commercial fundings fell 53 percent from the third quarter, MBA said. Retail property production dropped three-quarters, while multifamily financings saw just a one-third decline and health-care activity was down only 35 percent. Mortgage originations for industrial properties were 68 percent lower, hotel volume was down two-thirds and office originations fell 63 percent.

Commercial mortgage volume during the fourth-quarter for Fannie Mae and Freddie Mac loans fell just 21 percent from the prior period, though life insurance originations were down 73 percent. Fourth-quarter conduit commercial production was down 60 percent from the prior period and commercial bank business was down 43 percent.

“Commercial and multifamily mortgage lending slowed to a trickle in the fourth quarter,” MBA commercial mortgage executive Jamie Woodwell said in the report. “Between the worsening economy and the continued credit crunch, lenders are extremely cautious.”

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