By the Numbers

Current credit in agency and non-agency multifamily loans

Mary Beth Fisher, PhD | February 23, 2024

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.

Delinquencies have been on the way up in the multifamily mortgage market since the Fed began raising rates but not at the same pace across sectors. The current level of delinquencies among loans backing non-agency CMBS and CRE CLOs is the highest, with the pace among agency multifamily loans lower. And bank multifamily credit performance looks a lot like the agencies’.

Where the largest multifamily exposures are

The $2.2 trillion multifamily mortgage market is dominated by the government sponsored entities (GSEs) and the banks. Fannie Mae, Freddie Mac and Ginnie Mae together account for 46% of multifamily debt outstanding, where the loans are sold as pools or packaged into securities backing a nearly $1 trillion agency CMBS market. Depository institutions collectively are the other behemoth, accounting for 33% of multifamily mortgage lending.

Exhibit 1: Non-agency CMBS represents a small portion of multifamily debt

Note: The amounts outstanding attributed to CMBS by CREFC is Federal Reserve data on private mortgage conduits. This does not appear to include all multifamily debt in CRE CLOs, which is likely entering under the REIT and finance company categories. The categories combined are 86 billion, which is consistent with multifamily in the non-agency CMBS and CRE CLO market. Data as of Q3 2023.
Source: CREFC, Federal Reserve

Credit in CMBS and CRE CLO multifamily

The non-agency CMBS and CRE CLO markets comprise only 4% of multifamily lending, or $86.8 billion UPB (Exhibit 2). Multifamily performance in the non-agency market has been a bit weaker than that in the agency CMBS space. Delinquent or troubled loans – including those in any stage of non-performance, in special servicing and matured but still performing – currently comprise 3.3% of collateral; strictly non-performing loans comprise 2.4% (Exhibit 2).

Exhibit 2: Multifamily performance in non-agency CMBS and CRE CLOs

Note: Data as of 2/22/2024. Includes loans on multifamily and manufactured homes. Paid-off or defeased loans are excluded. Matured loans that are still performing are not included in “non-performing status” table, but are included under “UPB non-performing” in loan table. Loan table totals include 518 performing loans comprising $1.1 billion UPB from vintages 1994-2003. Source: Bloomberg, Santander US Capital Markets

Credit in agency multifamily

Performance is better in most agency CMBS, though trouble spots exist:

The delinquency rate for Fannie Mae DUS collateral was 0.51% as of the third quarter of 2023, the last date for which complete data is available. Given the surge in delinquencies during the final quarter of 2023, the rate probably rose to the 0.60% to 0.80% area.
Delinquencies in Ginnie Mae project loans touched 1.1% in January, and appear to have held there in February.
Freddie Mac has the lowest rate of agency CMBS delinquencies in their FHMS shelf, which was 0.51% as of mid-February. This is predominantly their K program, where floating rate loans have run into the greatest pressure, similar to floating rate borrowers across all virtually all product areas and property types.
Freddie’s small balance program represents less than 10% of their securitized portfolio but is the significantly more distressed (Exhibit 3). Overall troubled loans are 3.2% of outstanding balances, while strictly non-performing loans currently represent 2.4%.

Exhibit 3: Freddie Mac small balance shelf (FRESB) is under more pressure

Note: Data through mid-February 2024. Paid-off or defeased loans are excluded. Performance analysis excludes matured loans that do not have status “matured non-performing”. Those loans are in loan table for reference. Note that 27% of loans are in special servicing by technically still performing. These loans are predominantly a portfolio of NYC rent regulated buildings.
Source: Bloomberg, Santander US Capital Markets

Bank multifamily performance

Because banks hold the loans on their balance sheets, they are not subject to the restrictions of modifying performing or troubled loans imposed by REMIC rules. They have the greatest flexibility to grant extensions, decrease interest rates, reduce or remove interest rate cap requirements, or allow any number of accommodations to work with borrowers and prevent loans from migrating to delinquency and workout.

The underwriting standards of the GSEs are relatively strict and uniform in the multifamily space, and their cost of financing is consequently the lowest. Underwriting for bank multifamily loans varies across institution, but the added flexibility for addressing problem loans potentially keeps their long-term delinquency rates at or below those in non-agency for banks with large, diversified portfolios. In fact, as my colleague Tom O’Hara shows, bank delinquency rates look very comparable to the GSEs.

JPMorgan Chase has a $101 billion portfolio of multifamily loans as of year-end 2023, representing 14% of outstanding bank exposure in the sector. Based on the most recent FDIC call report, their delinquency and non-accrual rate for multifamily loans was 0.36%, below that of the best performing GSE.

Regional and community banks with concentrated exposure in particularly hard hit areas, such as New York Community Bank and its profile in New York City, may have elevated levels of stress and non-performance.

Mary Beth Fisher, PhD
marybeth.fisher@santander.us
1 (646) 776-7872

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