“There are a number of missing blanks that Treasury has to fill in with this plan,” said Dave Baird, national director for multifamily for Sperry Van Ness, “but I think it is clear that this will add additional and much needed liquidity to the capital markets.” There is some speculation that a stepped-up Treasury presence in the capital markets could even provide an indirect positive boost to the CMBS market.
That latter theory may be a bit of a stretch, but given the unprecedented maneuvers by the government, not to mention the capital market environment as a whole right now, nothing is beyond speculation. “While we haven’t yet had indications that CMBS is on the table, we’re reviewing all developments and can comment as additional information comes to light,” said Kenneth Reed, managing director of the Commercial Mortgage Securities Association.
But “what we do know,” he continues, is that the “Treasury said it’s committed to purchasing GSE mortgage-backed securities, though the size and timing of those purchases are left solely up to Treasury. As for the scale of the program, or potential increases in MBS purchases, that issue would depend on the housing markets and overall market conditions.” So, it sounds like Hank Paulson is trying to make sure that the markets know he has plenty of extra rounds left for his now smoking-hot bazooka.
Under the plan, Fannie Mae will acquire GSE-backed MBS in the open market through designated independent asset managers who will be operating on behalf of the government. Fannie Mae’s plans are set to go into affect later this month, though the size and timing of the purchases are subject to the discretion of the Treasury Secretary and the scale will be based on developments in the capital markets and housing markets. Treasury can hold these assets to maturity and, based on mortgage market conditions, may make adjustments to the portfolio. Treasury will make available information on purchases through this program in the Monthly Treasury Statement.
At a minimum, it is now clear that capital market financing for multifamily will remain available, said Adam Petriella, a Los Angeles-based VP of Investments and Capital Markets for Marcus & Millichap. “While the sour home loans need to be cycled off their books, multifamily stands out as a star,” he says.
Given this addition to the government’s already unprecedented interventions in the markets, and the market’s action Tuesday, it seems the only reliable short candidate left may be Lehman. When the Lehman shoe finally drops, which may happen as early as Wednesday morning, it will relieve a lot of the remaining uncertainty out there in mortgage land.