Fannie Mae Prices 1st Resecuritization of Green Multifamily Bonds

Fannie Mae has priced its first resecuritization of multifamily mortgages on energy efficient buildings.

The $1 billion FNA 2017-M2, which priced Wednesday morning, is Fannie Mae's second GeMS REMIC of the year. Unlike the prior deal, it included two tranches that are backed by 30 loans originated under Fannie Mae’s green program and individually securitized.

It’s another sign that the financing of energy efficiency is moving into the mainstream of the capital markets.

Fannie Mae began offering loans that help owners of older apartment buildings make upgrades in 2012; it started securitizing the individual loans shortly thereafter. In 2016, the government sponsored enterprise issued $3.5 billion of green multifamily mortgage bonds. That’s still a small portion of its multifamily MBS, which totaled $55 billion last year. But it’s now feasible to include the Green MBS in resecuritizations, which are running at $1 billion a month or so.  

“The M2 represents one more step in Fannie Mae’s journey to realize social, environmental, and financial benefits through its innovative financial tools and business strategy,” Chrissa Pagitsas, Fannie Mae’s director of multifamily green financing business, said in a press release.

She said the collateral included both loans secured by buildings with a green certification such as LEED, ENERGY STAR, or Green Globes, as well as loans financing improvement intended to reduce a buildings’ energy or water consumption by 20% or more.

“The end result will be better quality housing with a lower environmental impact and positive cash flows,” Pagitsas said.

Josh Seiff, Fannie Mae’s vice president of capital markets and trading, said in the same press release that a number of new investors who focus on green and socially responsible investing participated in the deal.

All classes of FNA 2017-M2 are guaranteed by Fannie Mae with respect to the full and timely payment of interest and principal.

The $75 million A1 tranche has a weighted average life of 6.06 years and a coupon of 2.784%; it priced at 100.6% of face value, to pay a spread of 50 basis points over swaps.

The $536.7 million A2 tranche with a weighted average life of 9.82 years and a coupon of 2.784% priced at 97.85 of face value, to pay a spread of 66 basis points over swaps.

"We weren't expecting the green GeMS tranches to trade at a premium, we were looking to attract a new type of investor to the product and increase demand for our GeMS and DUS bonds as a whole," Lisa Bozzelli, director of multifamly capital markets and trading, said in a telephone interview.

“The hope is that the more green investment options there are, the more people are thinking about whether they should have green investments,” she said.

"One of the nice things about having this new product within our MBS DUS program is that while the Green nature of the financing is relatively new, the DUS MBS market is an established, liquid market based on high credit quality assets with stable cash flows and strong call protection.”

As Fannie Mae continue to see green MBS, it will be able to work it into its regular REMIC issuance," Bozzelli said. "Considering the current relative amount of green MBS, we might see it [in REMICs] a few times over the course of a year.”