Fannie Mae processed about $10.1 billion in multifamily loans in the first half of the year, a nearly 50 percent drop from the first half of 2008.
But the government-sponsored enterprise (GSE) has seen a huge uptick in Mortgage-Backed Securities (MBS) deals, an execution it has spent much of the year building up. Since the company is under a federal mandate to shrink its portfolio, Fannie Mae has made the MBS execution a priority.
To date, more than 71 percent of its production has been through the MBS execution, compared to just 17 percent in the first half of 2008. As the investor base of MBS improves, the pricing on these loans has continued to drop each month.
“If you go back to January, the MBS spreads were about 280 to 300 [basis points] over, and today they’re down to about 100 over,” says Manny Menendez, vice president of multifamily product development and business management for the Washington D.C.-based Fannie Mae.
The company will continue to migrate many of its portfolio-based products into the securitized realm. Earlier this year, Fannie Mae turned its fixed-rate credit facility product into an MBS execution, and the second half will see similar transitions.
“The next product that we’re probably going to make MBS-eligible is the structured ARM, an adjustable-rate execution,” Menendez says. “You’ll continue to see from us, from a product perspective, expanding the available universe of products that are securitizable.”
Fannie Mae continues to win a lot of fixed-rate business through the MBS program, with rates that are currently in the mid- to high- 5 percent range. But its floating-rate product hasn’t been as competitive with Freddie Mac’s adjustable-rate offerings this year. And Fannie may see more competition on the fixed-rate side, as Freddie Mac’s Capital Markets Execution (CME) program continues to gain steam. In fact, Freddie Mac is working on a single-loan securitization product—an outgrowth of its Capital Markets Execution program—to do battle with Fannie’s now-popular MBS execution.
“Freddie may begin to develop a comparable execution, a single loan securitization like the MBS DUS,” says Trent Brooks, a managing director at agency lender CWCapital. “That would give them the best of both worlds, to have a single transaction execution and a pool.”