Would-be GSEs reformers as well as investors should remember that the GSEs influence commercial and multifamily mortgage-related securities markets as well as single-family ones.
As a recent Barclays Capital report noted, since the downturn the relative share of GSE multifamily lending “has increased significantly.” Barclays forecasts more than $40 billion of agency REMIC issuance this year, up from $35 billion last year. In contrast, the percentage of conduit CMBS share has been so far in 2011-2012 in the single digits.
The government-related guarantee’s a big part of this. Also, as you probably know, GSE CMBS have got some prepayment deterrents agency RMBS don’t.
Fannie’s delegated underwriting and servicing loans primarily have yield maintenance requirements, Freddie uses lockout periods followed by defeasance, and if you want to include Ginnie Mae in the agency category (as Barclays does), its loans have around 10 years of protection in the form of lockout periods and declining prepay penalties.
Also unlike agency RMBS, “The Freddie Mac...series has been the most liquid of the three agency CMBS sectors...largely due to the steady and predictable issuance volumes.”
Average deal size in Freddie’s so-called K deals tends to be about $1 billion or so, according to Barclays.
In Fannie’s equivalent DUS Mega and REMIC deals, the former deal size averages about $72 million while the latter averages about $608 million. (Although, as noted previously on this publication’s website, an August REMIC deal under Fannie Mae’s Guaranteed Multifamily Structures program was around $1 billion in size. It included seasoned as well as new collateral.)
As noted previously on this publication’s website, buyers of agency CMBS have been expanding.
According to Barclays, these have included bankers, pension funds/insurance companies and large asset managers, as well as “CMBS and agency CMO crossover buyers.” Hedge funds and asset managers also may buy the IO pieces of the deals.
Among Barclays’ recent trade recommendations have been 2010 vintage IOs in the Ginnie Mae project loan REMIC sector. “Prepayment penalties boost yield if speeds spike,” the report notes.
Within the Fannie Mae multifamily sector, researchers recently recommended individual delegated underwriting and servicing pools, noting that these may trade cheaper than the Mega securities into which multiple DUS pools may be combined.
Unguaranteed “B” tranches are Barclays’ pick for the Freddie Mac K-series sector for investors who agree with the firm’s assessment of them as securities that “should be safe from losses even in a 2008-09 style downturn.”
Relative to CMBS, among things investors should note in looking at the sector is that “DUS passthrough coupons (after deducting guarantee fees paid to Fannie Mae) for older vintages have been lower than the net coupon for multifamily loans securitized in conduit trusts, signifying better collateral.
“This relationship broke down in the 2005-07 episode...since then, however, DUS net coupons have once again dipped below what is offered through conduit execution.
“There has been some loosening in credit, even for DUS pools in recent vintages,” Barclays added.
