Securitization’s New Multifamily Play: A Conduit Roundtable
(Cover photo courtesy of Luke van Zyl via Unsplash)
A new multifamily-focused conduit execution is beginning to take shape in the CMBS market, creating another potential financing channel alongside traditional conduit and agency lending. MBA NewsLink spoke with market participants across research, credit, and investment to examine what is driving the emerging structure, how its risks compare with existing alternatives, and what will determine whether it becomes a durable part of the securitization market.
MBA NewsLink: The Freddie Mac pullback from B-piece issuance is widely viewed as having been a meaningful catalyst. Beyond that, what combination of investor demand, borrower need and structural opportunity is driving the bank and B-piece partnerships now emerging?
Malay Bansal, Managing Partner, Head of Trading & Capital Markets, 3650 Capital: When Freddie Mac stopped selling traditional first-loss B-pieces in its benchmark K-deals in late 2025, it created a vacuum, especially for those who had raised capital targeting investments in K-deal B-pieces. Freddie K-deals have had strong historical performance. Through June 2026, with 29,403 loans totaling $640.7 billion securitized in 654 K-deals, the delinquency rate is 0.3%, and aggregate losses at $374.7 million are just 0.06%. That strong performance attracted B-piece buyers who were buying these B-pieces at sub-10% yield.
When Freddie stopped selling K-deal B-pieces, that created a need for investors to find an alternative investment. At the same time, there are borrowers who do not qualify for an agency loan or need slightly higher leverage, but do not want a traditional conduit loan. With declining conduit volume, banks active in the CMBS market were looking for a way to originate loans that would otherwise not reach the securitization market. With this product targeted to be “near-GSE” level of quality and underwriting, and loan spreads just a little higher than agency loans, it provides a solution to all three needs.
MBA NewsLink: The proceeds advantage relative to agency execution appears real but rate-sensitive — conduit lenders factor debt yield into their decisions while the agencies do not. Where can this product realistically compete with Fannie and Freddie, and where does that advantage compress or disappear as rates evolve?
Bansal: These loans are positioned at slightly higher leverage than the agency loans. For example, the average LTV, Debt Yield and DSCR for multifamily-only conduits were 69.4%, 7.8%, and 1.30x vs. 64.3%, 8.3%, and 1.37x for recent K-deals. So, while overall origination volume may go up and down with rates, the multifamily-only conduit loans will have the advantage of slightly higher proceeds than agency loans. Non-agency loans also have greater flexibility to offer full-term interest-only and rate buydowns.
MBA NewsLink: How durable is that combination if rate conditions shift? Is this product likely to continue?
Malay Bansal: This has the potential to become a durable on-goingseries of issuances. Rate changes will have an impact on overall origination volume, but this product is small in comparison to overall multifamily lending volume. The Mortgage Bankers Association forecasts multifamily lending to increase from $381.8 billion in 2025 to $385.3 billion in 2026, $412.5 billion in 2027, and $430.4 billion in 2028. Conduit and Freddie K issuances in 2025 were $33.3 billion and $34.2 billion, respectively. Only a small fraction of overall multifamily lending will need to shift from other sources to this program for it to be meaningful.
MBA NewsLink: Traditional conduits derive credit benefit from property-type diversification. How do investors and rating analysts think about the tradeoff when the pool is 100% multifamily? Does the strong historical performance of multifamily debt adequately compensate for the absence of that diversification?
Nitin Bhasin, Senior Managing Director, Head of Commercial Real Estate, KBRA: Historically, conduit multifamily performance, while better than average, hasn’t been that strong, especially when compared to Agency multifamily performance. For example, according to KBRA’s Conduit CMBS Default and Loss Study update published last year which studied three decades of performance, the cumulative conduit multifamily loan default rate was 13.9%, which was slightly lower than the cumulative default rate across all property types (16.9%); and far exceeded the Freddie Mac multifamily cumulative default rate of less than 1% (published here). Loss severity of defaulted loans also follows a similar pattern with 25.7% for conduit multifamily, versus 33.5% for all resolved conduit loans.
Furthermore, according to KBRA’s monthly CMBS Loan Performance Trends: August 2026, currently 8.9% of outstanding conduit multifamily loans are under distress (either 30+ days delinquent, or current-but specially serviced). That said, given the better than average performance, we view an all-multifamily pool to be safer than let’s say all-office or an all-lodging pool, all else being equal.
All else is not equal, however, as the loans being included in the multifamily only transactions so far have been at higher leverage and lower coverage levels compared to loans on other property types; factors which counteract the “safer than average” fact. At KBRA, we consider all these factors while analyzing these transactions.
MBA NewsLink: With limited performance history as a standalone execution, how should investors think about downside behavior in a pure multifamily pool? What historical analogs, if any, are most instructive for gauging how this collateral performs under stress?
Malay Bansal: When I was at Freddie Mac Multifamily, I co-authored a paper with the Freddie Research team (Default Ruthlessness: Examining Borrower Default Behavior, Commercial Real Estate Finance World, Jan. 2, 2014) looking at factors driving the performance of multifamily loans. The conclusion was that LTV and DSCR were not the only determining factors for defaults. Borrower behavior plays a big role. Given the attractive financing from GSEs, the stronger borrowers are motivated to remain in good standing with the enterprises. That is an additional factor that results in the borrower choosing not to default on a GSE loan in marginal situations. With multifamily-only conduit deals, that factor is not present. So, the performance will be a little worse than K-deal performance and will be highly dependent on the credit selection and expertise of originators and the B-piece buyers. With disciplined selection of “near-GSE” quality loans, the performance should be much better than that of multifamily loans in the traditional conduit deals.
Catherine Liu, Vice President Fixed Income Research, Morgan Stanley: There is no perfect historical analog for a 100% multifamily conduit pool, and the concentration profile of transactions issued so far introduces risks that differ from traditional conduit. In addition to exposure to a single property type, multifamily-only deals to date have generally featured fewer loans and properties, increasing sensitivity to individual loan, sponsor and geographic underperformance. Historical conduit multifamily performance therefore provides a useful reference for loan level credit behavior, but may not fully capture the concentration risk of a pure multifamily pool.
The most useful historical reference is multifamily collateral from prior conduit vintages, including performance through the GFC and subsequent credit cycles. Multifamily has historically been among the more defensive major CRE property types, with comparatively favorable default and recovery outcomes through periods of stress. Across pre- and post-GFC conduit multifamily loans that resolved with losses above 2%, average loss severity was roughly 49%, compared with 55% for industrial and 63% for retail. Tail outcomes have also been relatively contained: 57% of pre-GFC multifamily liquidations fell into severity cohorts below 50%, with fewer balances reaching the most severe loss buckets relative to other major property types. We think that partly reflects the sector’s broad buyer and lender base, the essential nature of housing demand, and lower exposure to functional obsolescence or structural shifts in tenant demand than sectors such as office or retail.
Historical five-year multifamily loans provide another useful, though imperfect, reference for today’s shorter-term structures. Five-year loans have experienced higher liquidation rates than 10-year loans (13.0% vs. 10.2%) but lower average loss severity (41.0% vs. 51.7%), resulting in comparable cumulative realized loss rates of ~5.3%. The comparison is limited by the smaller and generally more transitional historical 5-year sample. It is also important to account for differences in today’s market environment: higher borrowing costs and relatively tight cap rates may leave less room for property appreciation, particularly if rent growth fails to keep pace with rising operating expenses. In our view, shorter structures have offsetting effects on credit performance with less time for property appreciation and cashflow growth to support refinancing or recoveries, but also a shorter window over which submarket conditions or property fundamentals can materially deteriorate.
MBA NewsLink: If multifamily collateral migrates more meaningfully into standalone transactions over time, what does that mean for the composition and credit profile of the traditional conduit market?
Bansal: One of the goals I have heard from the banks issuing these deals is to bring loans that would have otherwise gone elsewhere to the CMBS market. Looking at the three deals done so far, that seems to be true. We estimate less than 5% of loans were previously in CMBS. Roughly 23% were previously in CRE CLOs, 15% had construction debt, 7% had agency debt, 25% had portfolio lender/bank balance sheet loans, and 25% unknown (we could not find the previous financing information).
The “near-GSE” quality target is intended to keep the loan pricing spread closer to GSE loan spreads (lower than traditional conduit loan spreads) and pull loans that will otherwise go elsewhere to these deals. Not all CMBS multifamily loans meet that standard, and so not all multifamily loans should be expected to move from the traditional conduit to these deals. In an ideal scenario, conduits will not change meaningfully.
Liu: A more meaningful migration of multifamily collateral into standalone transactions could boost private label securitization capacity while also reshaping the composition of traditional conduit pools. Dedicated multifamily execution would create an additional takeout channel for fixed-rate loans and could provide a securitization outlet for stabilized assets, including loans transitioning out of CRE CLOs. Over time, that could increase competition across multifamily financing channels, improve liquidity for the asset class, and support broader growth in private label issuance.
For traditional conduit, the credit implications would depend largely on which multifamily loans migrate and what collateral replaces them. Multifamily has accounted for more than 20% of conduit collateral since 2024 and has served as a relatively defensive source of diversification. If higher quality stabilized loans increasingly migrate to dedicated pools, traditional conduit could lose some of that defensive collateral, while the replacement mix could shift toward property types that have historically exhibited greater cyclicality, cashflow volatility, or obsolescence risk. Issuers could also offset some of that shift through greater inclusion of relatively defensive sectors such as industrial, self-storage, or manufactured housing.
If standalone transactions instead develop primarily as a financing channel for multifamily loans seeking higher proceeds, nonagency execution, or other forms of structural flexibility, rather than disproportionately drawing the strongest stabilized collateral away from mixed property pools, the effect on traditional conduit credit quality could be more limited. A meaningful change in property type mix could also influence rating agency treatment and required credit enhancement over time.
MBA NewsLink: What conditions would need to be met for this to become a repeatable, programmatic part of the securitization market — and at this early stage, where is the market most at risk of drawing the wrong conclusions from limited data?
Bhasin: There is no good performance proxy of multifamily-only conduits, and time will tell. Meanwhile drawing the conclusion which I have heard from some market participants, that “it’s multifamily so it’s safer”, is perilous. As such, in my view, one should consider each transaction at its own merit using traditional ground-up analysis rather than buying into a top-down shelf story. For this transaction type to become a meaningful portion of the market, demand and supply must meet. The more the product seasons, and during which time, if its promised better performance starts panning out, the more investor demand should materialize. On the supply side, ultimately, conduit shelves are driven by the same gain-on-sale motivation for these transactions as they are for the multi-property-type conduits. So, if they can capture a similar or greater gain by securitizing these loans in multifamily only deals rather than in conduits, supply will increase.
Malay Bansal: For this program to be successful, credit selection will be key. Expertise, market knowledge, and staying disciplined will matter and differentiate these programs.
Also, part of borrower GSEs’ appeal to borrowers (in addition to lower rates) is the GSE servicing, compared to CMBS servicing. Better servicing will attract the borrowers who generally avoid conduit CMBS loans because of concerns about servicing in CMBS. 3650’s approach to servicing provides a model here, as it was built on a model like the agencies where 3650 is available to and reachable by borrowers at any time, and borrowers do not need to be in default to start a conversation. The Special Servicer makes many of the decisions and is paid an ongoing strip instead of relying on special servicing fees.
One anomaly in the multifamily-only deals that have priced so far is that even though the B-piece is priced at a much tighter yield than conduit, the AAA bonds have priced wider than conduit AAAs. That reflects factors like novelty of these deals and concerns about liquidity. But that should correct over time. If investors are convinced these are better credits, demand should follow, which in turn should increase liquidity.
Catherine Liu: For multifamily-only conduit to become a repeatable, programmatic part of the securitization market, the product will likely need to develop broader investor support over time, alongside a consistent supply of collateral and economics that work for both issuers and borrowers. Increased issuance and participation should improve price discovery, establish a more consistent relative value framework vs traditional conduit and agency multifamily offerings, and provide more data on how the structures perform across different market and credit environments.
From an issuer perspective, market growth will also depend on sufficient borrower demand and a pipeline of loans to aggregate appropriately sized pools. As the market evolves, the product may gradually develop a more defined role alongside agency and traditional conduit lending, potentially servicing borrowers seeking higher proceeds, greater flexibility in loan terms, or financing for assets and sponsors that do not fit traditional agency parameters.
For an emerging product, the biggest risk is extrapolating too much from a small number of transactions. The first few deals may not be representative of how a more mature multifamily-only market ultimately develops in terms of leverage, loan count, geographic concentration, sponsorship, or collateral quality, while early pricing performance offers limited insight into how the product will behave through a full credit cycle. Consequently, we would be hesitant to draw broad conclusions on relative value, structural credit risk, or long-term performance until issuance becomes more diverse and the market develops a longer track record.
Disclaimer: The views expressed are solely those of Malay Bansal and do not necessarily reflect those of 3650 Capital or its affiliates. For informational purposes only; not investment advice or an offer or solicitation with respect to any security.
(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes submissions from member firms. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)
