Fannie Mae and Freddie Mac have made securitization programs their No. 1 priority this year, according to the panelists of “The GSEs in the Age of Conservatorship” session at the 2009 Apartment Finance Today Conference.

Fannie Mae’s mortgage-backed securities (MBS) program, and Freddie Mac’s burgeoning Capital Markets Execution (CME) program, will play a much greater role in the market this year than it did in 2008. “The foremost priority for 2009 has been to reinvigorate the MBS market,” said Heidi McKibben, Fannie Mae’s head of multifamily production. “It’s the most important thing we’re doing this year.”

The government-sponsored enterprises (GSEs) are under a regulatory mandate to shrink the size of their portfolios. Securitization programs, which sell groups of loans to investors, are a way to keep liquidity flowing without impacting the size of the GSEs’ books.

This push is a mixed-blessing for borrowers. Securitization programs offer better rates but less flexible loan documents than portfolio loans.

Investor interest in the MBS program has blossomed this year, and as a result, Fannie Mae’s pricing is inside of Freddie’s by as much as 20 basis points, as of April 1. But Freddie Mac’s CME program is closing the gap.

The CME program offers rates that are as much as 20 basis points lower than its portfolio execution, and proceeds are higher as well. Freddie is nearly ready for its first CME issuance, and hopes are high that a successful splash will help revive the market for commercial mortgage-backed securities in general.

“We are getting ready to go to market with our first securitization in the next 60 days,” says Steve Griffin, a regional managing director at Freddie Mac. “And we’re probably going to work on more products this year that will be securitized.”

Underwriting standards have tightened dramatically this year, driven by concerns about eroding fundamentals. “I’ve never seen a bigger and faster drop-off of performance than what I’ve seen the last 90 days,” Griffin said. “It’s very difficult to find out where values are right now.”

Both of the agencies are constricting the proceeds of short-term deals to drive more borrowers to 10-year executions. The GSEs are also taking a skeptical approach to cash-out financings, whether they’re done through a refinancing or a supplemental loan. The buzz at the conference was that Fannie would soon raise the debt-service coverage ratio on supplemental loans to 1.3x and take a hard-line approach to requests for a third supplemental loan.

Still, both McKibben and Griffin said that they would work to ensure that strong borrowers with well-maintained properties aren’t adversely affected by the cash-out refinancing changes.

Concerns loom regarding the long-term fates of the GSEs, but borrowers don’t seem to mind. “A thirsty man doesn’t question the glass of water handed to him,” noted John Cannon, head of agency lending at Capmark Finance. “But I believe that credit trends are going to get worse. In fact, you can bank on it.”

Despite the conservatorship, business is proceeding. The conservator doesn’t get involved in the day-to-day business of the GSEs, McKibben and Griffin noted. “They’re really not looking over our shoulder,” Griffin said. “In fact, we received a letter from [Federal Housing Finance Agency chair] James Lockhart recently expressing concern that we not get too conservative.”

In a sense, the Treasury Department’s support of the GSEs is the multifamily industry’s equivalent to the government stimulus plan. “The players that truly have a choice about being in the market have pulled back significantly,” McKibben said. “That’s why Treasury support is so critical and why this part of the commercial real estate sector is as valuable as it is today—the loans are available.”