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Defaults edge up in Fannie Mae multifamily

| December 11, 2020

This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.

Across the agency multifamily spectrum, loans are exiting forbearance and a portion are beginning to default. Analyzing delinquency and default trends in Fannie Mae multifamily loans shows that a higher percentage of loans in DUS pools than in FNA deals have entered forbearance, and a small subset of those have already defaulted.

Fannie Mae’s multifamily book outstanding totals $360 billion, where 25% has been securitized on the FNA shelf and 75% is in DUS pools and types of whole loan REMICs (Exhibit 1). Overall, 1.86% of Fannie multifamily loans have been in forbearance at some point, with DUS pools somewhat overweight forbearance at 2.18% outstanding while only 0.89% of FNA shelf loans have been in forbearance. One explanation for the discrepancy is that there is only a single seniors housing loan in FNA deals, whereas more than 3% of DUS pools are seniors housing and a significant portion of those loans have sought forbearance during the pandemic.

Exhibit 1: Fannie Mae multifamily loans outstanding

Note: DUS and whole loan REMICs outstanding implied from calculations of total outstanding less FNA shelf. Source: FNA shelf loans outstanding from Bloomberg, updated 12/9/2020. Total multifamily loans outstanding from Fannie Mae, latest data as of 12/10/2020 forbearance report. Amherst Pierpont Securities

The initial period of forbearance offered was three months. As the crisis wore on, borrowers could apply for an extension for another three months for a total of six months of possible forbearance. The majority of borrowers that sought forbearance entered into agreements from April through May, and those loans have exited forbearance and are in the repayment period. So far 5.0% of DUS UPB that entered forbearance has defaulted or gone into workout and been repurchased by Fannie Mae (Exhibit 2). This is 11 bp of DUS and whole loan REMICs outstanding. More than 21% of loans in forbearance have already cured and 44% are currently in repayment.

Exhibit 2: Forbearance summary for DUS loans

Note: Fannie Mae forbearance report of 12/10/2020. Source: Fannie Mae, Bloomberg, Amherst Pierpont Securities

Assessing forbearance and default trends in loans securitized on the FNA shelf is a bit more difficult (Exhibit 3). Loans actively in forbearance are designated as performing and then are marked as delinquent once they exit the forbearance period. The payment status for many loans moves from current to 90+ days delinquent. As these loans cure over time they should move into the 60-day and then 30-day delinquency buckets. There is typically no watchlist commentary provided for these loans so its more difficult to assess which are moving towards default and which are curing forbearance.

Exhibit 3: Forbearance summary for FNA shelf loans

Source: Bloomberg, Amherst Pierpont Securities

What is clear is that the 71.3% of FNA shelf loans that sought forbearance are presumably in the repayment period. The 28.7% of loans that are performing could include a subset that have already cured forbearance entirely, similar to the DUS pools that resolved early. So far, there does not appear to be FNA shelf loans in workout or default, though some portion of the 90+ days delinquent loans stand to be repurchased.

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