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.

Cardwell

"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.