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.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
