The level of commercial mortgage debt outstanding dropped 0.9% in the first quarter to $3.31 trillion, according to the Mortgage Bankers Association (MBA), which analyzed Federal Reserve Board data.

Declines in commercial mortgages held in commercial mortgage-backed securities (CMBS) drove the decrease, along with construction loans held by banks and thrifts, the association reported.

The debt outstanding recorded by the Federal Reserve in the first quarter represents $31 billion less than the amount outstanding in the fourth quarter of 2009. However, multifamily mortgage debt outstanding rose to $852 billion, an increase of $3 billion, or 0.4% more than in the fourth quarter of 2009.

“Low levels of commercial mortgage borrowing mean that property investors are paying off and paying down more in mortgages than they are taking out,” said Jamie Woodwell vice president of commercial real estate research at MBA.

“The balance of construction loans at banks, and commercial and multifamily mortgages held in CMBS and by life insurance companies, saw the largest declines. The balance of multifamily mortgages backed by Fannie Mae, Freddie Mac and FHA saw the largest increase,” added Woodwell.

The Federal Reserve’s flow of funds data summarizes the holding of loans or the form of a security, according to the MBA. Many life insurance companies invest both in whole loans for which they hold the mortgage note, and in CMBS, collateralized debt obligations (CDOs) and other asset-backed securities.

Commercial banks hold the lion’s share of commercial loans, including multifamily mortgages. The commercial banks hold $1.49 trillion, or 45% of the total.

Among the top 10 commercial real estate bank lenders, 48% of their aggregate balance of commercial real estate loans, excluding multifamily, were related to owner-occupied properties, according to MBA. The borrower's business income, rather than income derived from a property's rents and leases, drives the underwriting, pricing and performance of those loans.

CMBS, CDO and other asset-based issuers are the second largest holders of commercial mortgages, with $679 billion, or 21% of the total. Agency and government-sponsored enterprise portfolios and MBS hold $309 billion, or 9% of the total. Life insurance companies hold $302 billion, or 9%, and savings institutions, $184 billion, or 6% of the total.

The government-sponsored enterprises and Ginnie Mae hold or guarantee the largest share of multifamily mortgages, 36% of the debt outstanding for apartments, amounting to $309 billion.