Thank you for sharing!

Your article was successfully shared with the contacts you provided.

[IMGCAP(1)]NEW YORK CITY-The Federal Reserve Bank is kicking off the New Year with its previously announced plan to buy fixed-rate mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. The Federal Reserve will release more details about these operations–such as the amount of the securities it is purchasing–on Thursday, Jan. 8, it said in a statement. “Selected private investment managers are acting as agents of the New York Fed in these purchases,” it said.

BlackRock Inc., Goldman Sachs Asset Management, PIMCO and Wellington Management Co. have been tabbed to manage the $500-billion purchase of MBS that the New York Fed plans to complete by the end of Q2. The Fed says it is necessary to work through external investment managers because “the operational and financial characteristics of MBS purchases are significantly more complicated than those associated with the assets that have traditionally been purchased by the Federal Reserve.”

This move, first announced at the end of November is part of a multi-front war the federal government is waging against the credit meltdown and now, recession. The Federal Reserve Bank announced it would buy $100 billion of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks and up to $500 billion of mortgage securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae. In subsequent statements it said that it would focus on stable securities with maturities of 30, 20 and 15 years–excluding riskier securities such as securities based on interest-only loans.

Eligible assets may be purchased or sold in specified pools, in “to be announced” transactions and in the dollar roll market, according to the New York Fed. A dollar roll is a transaction involving the sale of agency MBS for delivery in the current month and the simultaneous agreement to repurchase substantially similar (although not the same) securities on a specified future date.

[IMGCAP(2)]At the time the move was deemed to be a boon for the multifamily sector, which has become almost completely dependent on GSE support. That is still the case, David Cardwell, vice president of capital markets and technology of the National Multifamily Housing Council, tells GlobeSt.com–but not to the same degree as a few months ago.

“Fannie Mae and Freddie Mac have raised their spreads significantly since the announcement to cover the added credit risk,” explains Cardwell. The move is still a net positive for multifamily borrowers, even with spreads higher from 50 to 125 basis points, he says, because it lowers the cost of capital.

The New York Fed says it will adjust the pace of its purchases based on input from the investment managers about market conditions and the impact of the program. The bank says its exposure to increased risk is “minimal,” mitigated by the buy-and-hold investment strategy the program will employ.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?


Join 1000+ of the industry's top owners, investors, developers, brokers & financiers at THE MULTIFAMILY EVENT OF THE YEAR!

Get More Information


Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.