Uncategorized
An early look at how forbearance is playing out in CRT
admin | April 30, 2021
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. This material does not constitute research.
The market is just starting to get cure and prepayment rates in Fannie Mae and Freddie Mac loans leaving forbearance, and the numbers look positive for CRT. More than half of previous seriously delinquent borrowers have cured or prepaid, a strong positive for credit fundamentals. But borrowers exiting forbearance sooner rather than later are more likely able to reperform, and cure rates on these pools could drop in the future.
Current faster cure rates could cause CRT principal windows to re-open sooner than anticipated on certain structures, particularly pre-REMIC actual-loss deals. The recent rally in CRT has been partially fueled by a repricing of CRT to slower prepayment assumptions. However, the extension that has been priced into premium bonds may be somewhat offset by delinquency triggers passing sooner than previously anticipated.
A look at early stage cure rates
More than half of Fannie Mae and Freddie Mac CRT loans greater than 60 days past due in June 2020 have subsequently either cured or prepaid as of the January remittance. Cure rates between the enterprises were substantially similar. Fifty-six percent of borrowers seriously delinquent in Freddie Mac CRT in June have subsequently cured or prepaid while 53.6% of those borrowers in Fannie Mae CRT have done so.
A look at the breakdown of cure and prepayment rates shows that just less than 13% of previously seriously delinquent borrowers have prepaid after exiting forbearance in both Fannie Mae and Freddie Mac CRT. Roughly 40% of borrowers in Freddie Mac CRT either self-cured or re-performed after their arrearages accumulated during forbearance were capitalized and deferred in non-accrual status. An additional 1.3% of borrowers cured through another form of loan modification.
Given slight reporting differences between the two agencies, a bit more insight can be gleaned from the manner in which loans in Fannie Mae CAS deals re-performed. Just less than 31% of previously seriously delinquent loans in Fannie Mae CRT cured through capitalization modification, and additional 8.8% self-cured with 1.2% of borrowers curing through another form of modification (Exhibit 1).
Exhibit 1: Cure and prepayment rates on previously DQ loans in Freddie Mac CRT

Source: Freddie Mac, Amherst Pierpont
Thoughts on timing of cures
The overwhelming majority of borrowers who entered forbearance appear to have done so in April of last year. Using loans referenced in 2018 vintage Fannie Mae CAS deals as a proxy shows that just over $15 billion of UPB went into forbearance between March of last year and January of this year. Of that $15 billion, $8.6 billion, or 55% of that balance, went into forbearance in April of last year. After netting out prepayments, loans that rolled back to current and borrowers who took forbearance but continued to make payments, it is estimated that roughly $2.5 billion of those loans could exit forbearance plans in October of this year. (Exhibit 2)
Exhibit 2: Estimating timing and magnitude of borrowers exiting forbearance

Source: Fannie Mae, Amherst Pierpont. Assumes 18 month forbearance plan extension and on 2018 Fannie Mae CAS reference loans
While both Freddie Mac and Fannie Mae issued revised guidance that borrowers may be eligible for up to 18 months of forbearance, a 6-month extension over the originally proposed 1-year term, not all borrowers will qualify for that extension. For borrowers to be granted forbearance greater than one year, they must work with their servicer to establish Quality Right Party Contact to demonstrate that they are eligible for additional hardship forbearance. Given the fact that this was not required for the first year of forbearance as a result of the CARES Act, it seems likely that borrowers who are no longer in need of deferrals will have to resume making scheduled monthly payments in the near term as these plans reach their one year expiry.
Looking at cure rates by loan attributes
Somewhat surprisingly, cure and prepayment rates were generally consistent across loan attributes. Lower FICO loans have exhibited modestly lower cure rates than higher FICO ones but were still likely higher than many may have anticipated. Forty-four percent of loans seriously delinquent in June of last year with original FICO scores between 300 and 640 have subsequently cured or prepaid. By comparison higher FICO borrowers, those with original credit scores greater than 760, have cured at a rate of 60%. Looking at cure rates across the spectrum of loans’ current LTV ratios shows an almost remarkably consistent cure rate as loans with LTVs less than 60 have cured at a rate of 55% while loans with LTVs greater than 90 have cured at a rate of 51%. While cure rates appear elevated across most measures of borrower attributes, the analysis does not control for compensating credit characteristics and pools with larger populations of loans with layered risk may still experience higher default and lower cure rates than those without. Additionally, while cure rates are currently tracking ahead of where the market may have anticipated, loans that have re-performed or prepaid in recent months may be more positively selected and cure rates may slow over time as stronger credits re-perform and prepay while weaker ones remain in the pools.
Investment Implications
The confluence of the recent rally in CRT, rising cure rates, slowing prepayments and borrowers exiting forbearance sooner rather than later could impair valuations on certain premium, earlier vintage, non-REMIC CRT. Extremely elevated prepayments have kept delinquency rates elevated as the population of delinquent loans have been falling at a slower pace than the reference pool balance have been prepaying, keeping the percentage of delinquencies elevated. As prepayments begin to normalize to some degree against the backdrop of higher rates, the ratio of delinquent loans relative to the overall size of the pool should start to fall, especially if cure rates remain elevated. The combined impact could drive delinquency rates below trigger levels, reopening principal windows at the top of the capital structure in these deals shortening the cash flow. However, given that these triggers are calculated based on a 6-month rolling average the impact of these factors may not be felt for some time.
This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at https://portfolio-strategy.apsec.com/sancap-disclaimers-and-disclosures.
Important Disclaimers
Copyright © 2025 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.
In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.
The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.
In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.
Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.
Important disclaimers for clients in the EU and UK
This publication has been prepared by Trading Desk Strategists within the Sales and Trading functions of Santander US Capital Markets LLC (“SanCap”), the US registered broker-dealer of Santander Corporate & Investment Banking. This communication is distributed in the EEA by Banco Santander S.A., a credit institution registered in Spain and authorised and regulated by the Bank of Spain and the CNMV. Any EEA recipient of this communication that would like to affect any transaction in any security or issuer discussed herein should do so with Banco Santander S.A. or any of its affiliates (together “Santander”). This communication has been distributed in the UK by Banco Santander, S.A.’s London branch, authorised by the Bank of Spain and subject to regulatory oversight on certain matters by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
The publication is intended for exclusive use for Professional Clients and Eligible Counterparties as defined by MiFID II and is not intended for use by retail customers or for any persons or entities in any jurisdictions or country where such distribution or use would be contrary to local law or regulation.
This material is not a product of Santander´s Research Team and does not constitute independent investment research. This is a marketing communication and may contain ¨investment recommendations¨ as defined by the Market Abuse Regulation 596/2014 ("MAR"). This publication has not been prepared in accordance with legal requirements designed to promote the independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The author, date and time of the production of this publication are as indicated herein.
This publication does not constitute investment advice and may not be relied upon to form an investment decision, nor should it be construed as any offer to sell or issue or invitation to purchase, acquire or subscribe for any instruments referred herein. The publication has been prepared in good faith and based on information Santander considers reliable as of the date of publication, but Santander does not guarantee or represent, express or implied, that such information is accurate or complete. All estimates, forecasts and opinions are current as at the date of this publication and are subject to change without notice. Unless otherwise indicated, Santander does not intend to update this publication. The views and commentary in this publication may not be objective or independent of the interests of the Trading and Sales functions of Santander, who may be active participants in the markets, investments or strategies referred to herein and/or may receive compensation from investment banking and non-investment banking services from entities mentioned herein. Santander may trade as principal, make a market or hold positions in instruments (or related derivatives) and/or hold financial interest in entities discussed herein. Santander may provide market commentary or trading strategies to other clients or engage in transactions which may differ from views expressed herein. Santander may have acted upon the contents of this publication prior to you having received it.
This publication is intended for the exclusive use of the recipient and must not be reproduced, redistributed or transmitted, in whole or in part, without Santander’s consent. The recipient agrees to keep confidential at all times information contained herein.