By the Numbers
Strong performance despite lingering workouts at Fannie
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.
A check-up on Fannie Mae’s multifamily portfolio performance shows the agency navigated the pandemic exceptionally well. In fact, this performance has been consistently strong across all post-housing crisis vintages. Periods of historically low interest rates and a decade of strong multifamily property price appreciation no doubt contributed to the very low default rates for post-2009 vintages. Both of those trends are now reversing, creating modest stress in the agency multifamily market. Past performance may not indicate future results but evaluating it can help guide investors around a few potential pitfalls and reveal property sectors that have re-stabilized post pandemic.
Overall, Fannie Mae’s multifamily portfolio performance has been much stronger across post-2009 vintage loans compared to pre-2009 (Exhibit 1). Default rates peaked at 5.6% for 2007 vintage loans, but have run consistently below 0.50% and often in the single basis points for 2010 and later vintages. Cumulative losses also peaked for the 2007 vintage at 1.31% but have so far run between 0 bp to 8 bp for post-2009 vintages.
Exhibit 1: Fannie Mae multifamily performance summary
Note: A negative net loss indicates the recovery amount was greater than the defaulted amount plus costs incurred. Data through Q3 2022.
Source: Fannie Mae, SCIB US
Default rates are likely headed higher, though, because Fannie Mae continues to have a backlog of multifamily loans that are delinquent or in some stage of workout (Exhibit 2). There is good news and bad new here:
- There are 125 loans totaling $1.37 billion in unpaid principal balance (UPB) that are in some stage of delinquency or workout as of the third quarter of 2022. That compares to only 43 loans since 2010 that have defaulted and incurred losses.
- The good news is that about half of those loans totaling $718 million in UPB entered forbearance and are currently in repayment. The remaining $654 million is 90+ days delinquent and likely to incur losses.
- If the average loss severity of 28.8% is used to project losses based on those new default amounts, then projected cumulative losses across most vintages rise modestly, but remain low. The 2014 vintage is the most impacted where projected losses would rise from 4 bp to 9 bp, while the 2017 and 2018 vintages would have cumulative losses increase from 1 bp to 8 bp and 7 bp, respectively.
Exhibit 2: Projected losses based on currently delinquent loans not in forbearance repayment
Note: Cumulative losses are as a percentage of acquisition UPB. Projected losses assume the average loss severity of 28.8% of the projected default amounts. Data through Q3 2022.
Source: Fannie Mae, SCIB US
Pandemic impact versus other delinquent loans
The pandemic had a disparate impact on multifamily property types, dramatically increasing delinquency and default rates for student and seniors housing (Exhibit 3). Of the $1.37 billion that is currently delinquent, 25% is student housing and 15% is seniors housing. The good news is that most of the delinquent student housing is actually in the repayment period from forbearance and is likely to cure. Over half of the delinquent seniors housing collateral is fully in workout; not a surprise given it was the multifamily sector hit earliest and hardest by the pandemic.
Exhibit 3: Property type breakdown of delinquent loan UPB
Note: Multifamily segment includes coop and multiple property delinquencies. Data as of Q3 2022.
Source: Fannie Mae, SCIB US
The $426 million of delinquent loans never in forbearance almost entirely defaulted before to the pandemic. They are heavily multifamily with less than 10% student housing and about 5% manufactured housing. Many of these very long-term delinquencies have been in workout for years. Some of the delay in resolving defaulted loans is due to the property being in a judicial foreclosure state. These states require the lender to file a lawsuit in state court to foreclose on a property. The foreclosure process in state courts can be cumbersome and contentious, drawing out the average time to foreclose on a property from months to years.
Exhibit 4: Fannie Mae delinquency rates by state
Note: Delinquency rates are for all delinquent loans as a percentage of total outstanding loans in the state, including those in the repayment period of forbearance. Data as of Q3 2022.
Source: Fannie Mae, SCIB US
Fannie’s multifamily delinquency rates by state (Exhibit 4) are most heavily influenced by the impact of the pandemic. However, it is notable that some states with delinquency rates higher than those around them are judicial foreclosure states, including Oklahoma, Louisiana, South Carolina, Ohio, New York and New Jersey.
Property prices have started declining
The impact of the pandemic on commercial real estate performance, and multifamily in particular, was buffered by several factors:
- The forbearance and fiscal policies implemented by the government and private lenders; and by
- The astonishing surge in real estate valuations due to the combination of low interest rates and surging demand (Exhibit 5).
Multifamily property prices peaked in the second quarter of 2022 with price increases of 24% year-over-year. Those increases slowed sharply during the second half of the year, falling to around a 6% increase by the fourth quarter. The quarter-over-quarter declines have so far been just under 2% the last two quarters, but multifamily property prices are expected to continue falling through at least the first half of 2023. This is projected to eventually push the year-over-year changes negative.
Exhibit 5: Changes in commercial real estate prices across property types (year-over-year)
Note: Quarterly indices with monthly data through November 2022. CoStar Commercial Repeat Sale Indices, value weighted, shows year-over-year changes.
Source: CoStar
An environment of higher short-term interest rates and declining property prices is one that real estate markets haven’t experienced in a couple of decades. Although investors need to be cautious, Fannie Mae DUS borrowers are in a relatively strong position. The maturity wall, or percentage of outstanding multifamily loans maturing over the next few years, is quite low (Exhibit 6). Less than 2% of outstanding collateral matures this year, and just under 10% matures over the next three years. The average interest rate on the maturing loans is 4.8% this year and falls modestly over the next two years.
Exhibit 6: Maturity wall for Fannie Mae multifamily borrowers
Note: Data through Q3 2022.
Source: Fannie Mae, SCIB US
Given the inversion of the yield curve, borrowers can achieve similar to slightly higher fixed rates for 10-year terms. A surge of borrowers with floating rate loans continue to prepay as they either sell their properties or refinance into fixed-rate loans.
Although new production will likely continue to be muted during the first half of 2023, there could be a modest rise in agency fixed-rate issuance as borrowers find their interest rate caps on floating rate loans too expensive to replace.
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.
