Fannie Mae Announces 71% of Total Production is Now Securitized as MBS vs. Held in Portfolio

By Keat Foong, Executive EditorWashington, D.C.—Fannie Mae has reported strong progress in expanding the investor base for its financing. This may mean greater assurance of capital availability for the multifamily sector. The company recently announced that the biggest portion of its multifamily financing is now securitized and sold in the Mortgage-Backed Securities (MBS) market as opposed to being held in portfolio. According to Fannie Mae, about 71 percent of its total production in the first half of 2009 was an MBS execution, compared to 17 percent in the first half of 2008. This compares to a 80-percent-balance-sheet-versus-20-percent-MBS execution last year. The company said it has successfully pursued its 2009 top priority of “reinvigorating its MBS business and broadening the investor base.” “By ramping up its MBS execution, Fannie Mae Multifamily is shifting from being primarily a multifamily portfolio market participant to one that provides liquidity to the multifamily market mainly through MBS issuance,” the company stated. The company is “very, very pleased with the progress made” in meeting its MBS goals, said Manny Menendez, vice president of Multifamily Product Development & Business Management, in a teleconference with reporters. Some lenders have said that financing that will eventually be sold as MBS as opposed to being kept in Fannie Mae’s portfolio may mean less flexible terms, though lower interest rates, for multifamily borrowers. However, Fannie Mae has indicated there will not be a difference to the borrowers today whether the loan will be securitized as MBS or held in portfolio. Sam Chandan, President and Chief Economist Real Estate Econometrics, described Fannie Mae’s goal of increasing its MBS issuance as “a positive strategy for the long term given the breath of capital sources to which it will give Fannie Mae access”—especially if Fannie Mae’s balance sheet should become more constrained in future. Chandan added that Fannie Mae’s own balance sheet may not be as robust. He said the direction in future may be for it to become not so much “a portfolio lender as much as a facilitator.” Chandan said there is some risk of investors souring on multifamily down the road because of higher delinquencies or perception of risks. In this way, MBS executions are more subject to the vagaries of the broader investment market, whereas the agency may have more control over its portfolio loans, he explained. For now, MBS costs appear very favorable. Menendez said in the teleconference that MBS spreads have declined significantly, from 280-300 basis points in January to 100+ basis points today. “We’ve seen significant improvements in MBS trading levels,” said Menedez. He said Fannie Mae has been marketing to investors in the first half of the year and received a very good reception. MBS is “now widely accepted,” he said.