Fannie Mae’s on-again, off-again relationship with variable-rate bond credit enhancements may soon take another turn.
The company is thinking about re-entering the market for floating-rate tax-exempt bond deals, which would be welcome news to an affordable housing industry beset by financing shortfalls.
While the high-level discussions haven’t yet resulted in a formal announcement, indications are that the company will re-enter the market sooner rather than later, two industry sources said on condition of anonymity.
While fewer and fewer 4 percent deals are penciling out these days, there is still healthy demand for variable-rate bonds for preservation deals from nonprofits and housing authorities, and from existing bond deals in need of restructuring or refunding.
Freddie Mac has stayed in the variable-rate tax-exempt bond market fairly consistently (a brief two-week exit in 2008 notwithstanding), growing its market share. Fannie Mae, though, took itself out of the market for much of 2008, frustrating many Delegated Underwriting and Servicing lenders who had relied on that business in the past.
But having both Fannie and Freddie in the variable-rate bond credit enhancement sector would not only boost liquidity for these deals but also help drive competition, which could result in better rates and terms for borrowers.
Pricing on Freddie Mac variable-rate bond credit enhancements with an interest-rate hedge like a swap was in the mid- to high 5 percent range for 10- and 15-year deals, in late February. In contrast, prices for 10- and 15-year fixed-rate bond deals ranged from the low to high-6 percent range.
