A recent proposal from the Treasury Department to review the procedure for approving future debt issues from Fannie Mae and Freddie Mac could have a significant negative impact on commercial mortgage-backed securities spreads. Treasury Undersecretary Randal Quarles said last week that he's asking the Treasury staff to review how it approves Fannie and Freddie debt issues. The Treasury wants to limit Fannie Mae and Freddie Mac's debt issuance and reduce their mortgage-backed securities portfolios.
The government-sponsored entities issue debt to fund their mortgage investment businesses. Freddie Mac owns about 10% of outstanding CMBS and has typically acquired huge chunks of multifamily bonds. Fannie Mae only started pursuing CMBS investments earlier this year. Last year, issuers carved out $13.1 billion of bonds, or almost 10% of the year's issuance for the agencies, according to data from the Mortgage Banker's Association. If Fannie Mae and Freddie Mac participation in CMBS is limited, issuers believe spreads on AAA-rated bonds could widen significantly.
Calls to Fannie Mae and Freddie Mac were not returned by press time.