CAPITAL CHAT: Fannie Mae Maintains Investor Interest

By Keat Foong, Executive Editor

Good news for Fannie Mae multifamily borrowers: the GSE’s mortgage-backed securities are a popular item with bond buyers.

The pool of investors purchasing Fannie Mae multifamily mortgage backed securities (MBS) continues to increase, Josh Seiff, vice president of Multifamily Capital Markets & Trading, tells MHN. “Investor demand for Fannie Mae’s multifamily MBS ebbs and flows over time, but generally, demand for the sector continues to grow. We continue to bring new investors to the product.”

For the first quarter, Fannie Mae reported it saw more than $15 billion in multifamily securitizations. Of this amount, $10.4 billion was new-issue MBS; $3.4 billion was Guaranteed Multifamily Structures (GeMS)—agency CMBS issued by Fannie Mae; and the remainder were non-GeMS REMIC agency CMBS issued by broker dealers. (In all of last year, the company’s multifamily financings totaled $28.9 billion.) Most of Fannie Mae’s MBS—nearly 100 percent—are composed of financings originated by Fannie Mae’s Delegated Underwriting and Servicing (DUS) lenders.

The agency’s multifamily bond spreads in the first quarter were slightly tighter, by a few basis points, said Seiff. Although Treasury rates have been fairly volatile, investors are showing fairly consistent demand for the GSE’s multifamily securities, he said. “Underwriting standards remained consistent and investor demand was strong—spreads tightened throughout the quarter,” he stated in a press release.

Fannie Mae guarantees of timely payment of interest and principal on its MBS could be one reason the agency’s securities are attractively priced and experience less volatility. Further reassuring investors is the DUS lenders’ “skin in the game” in the loans they originate—in the event of a loan default, the lender would typically share in any losses incurred on the mortgage on a two-thirds/one-thirds basis.

Fannie Mae also attempts to broaden the market for its securities, especially considering that not all Fannie Mae MBS investors are necessarily active buyers of the securities at all times. “Our job to a great extent is to make sure there is fairly consistent investor demand” for the MBS supply that is created by lenders and borrowers, said Seiff.

Most of Fannie Mae’s DUS loans are packaged into single-loan MBS pools. Lenders can sell these securities individually to qualified buyers, creating liquidity for both the borrowers and lenders. To appeal to a broader array of investors, Fannie Mae also offers multiple-loan pools of structured MBS through its GeMS program.

In the midst of broader interest-rate volatility, spreads for Fannie Mae securities have also been fairly stable in the second quarter, said Seiff. Many fixed-income investors were hesitant to put money to work in the environment, but there were no meaningful changes in spreads.

Seiff said that he could not speculate regarding the effects on Fannie Mae loan spreads of possibly higher interest rates later in the year. “There are any number of factors that impact spreads,” he said. “What we can say is that [Fannie Mae multifamily] MBS spreads will likely be less volatile than other securitized commercial real estate products.”