Agency Loans Likely to Fall Short of 2023 Production

Positive signs are emerging including a reversal of acquisition to refinance ratios on Fannie Mae loans.

Fannie Mae and Freddie Mac in on pace to finance 40% of CRE transactions in 2024 compared with 40% last year despite a decrease in total volume since 2021, according to Berkadia’s quarterly market update.

Fannie Mae issuance is down 23% over the past year, with year-to-date issuance figures totaling about $32.5 billion. This could leave the government-sponsored enterprise $10 billion shy of last year’s production and $27 billion shy of its cap, according to the report. Meanwhile, Freddie Mac’s pace is slightly ahead of last year through the first half of 2024 but is also on pace to finish well short of both last year’s production and its $70 billion cap.

Adjustable-rate mortgages have become less popular in the recent rate environment, and Fannie Mae has not delivered any ARMs yet this year, the report said. Agency CMBS volume has shifted to shorter terms, typically five and seven years, as borrowers anticipate downward treasury rate pressure in the medium and long term.

The ratio of acquisitions to refinances has improved during the past several months, with the ratio for Fannie Mae loans increasing 6% from 2023 to settle at 34% year-to-date. This is a reversal of a near-term ratio low in 2022 as buyers and sellers paused following the pandemic to confirm market stability and a second dip in 2023 due to increased Treasury rates.

Both agencies are aggressively pricing deals for current-year delivery, and rates are sticking to a relatively tight trading range, said Berkadia. Following the somewhat unexpected move in terms of the size of the rate cut, rate volatility surrounding important economic announcements is likely to continue, the firm said. Position deals to take advantage of Fannie Mae and Freddie Mac’s streamlined rate lock and index lock programs will allow deals to benefit from advantageous moves in the treasury yields, the report said.

During the past year, both GSEs have focused on mitigating fraud by introducing rules around brokered transactions and increasing inspection requirements, as well as additional underwriting requirements, focused on less experienced sponsors and REO verification.