Federal Reserve of New York Initiates Agency CMBS Purchases

The Federal Reserve Bank of New York initiated the System Open Market Account holdings of agency mortgage-backed securities “in the amounts needed to support smooth market functioning.”

The Mortgage Bankers Association and others have been advocating for such a move.

Effective March 23, the Federal Open Market Committee directed the Federal Reserve Bank of New York’s Open Market Trading Desk to increase the System Open Market Account holdings of agency mortgage-backed securities. For the first time, the FOMC directed the trading desk to include agency commercial mortgage-backed securities purchases in such purchases.

The trading desk conducted its first purchase of agency CMBS on March 27.

In this operation, the trading desk will purchase up to $1 billion of fixed-rate Fannie Mae Delegated Underwriting and Servicing pools with a 10-year loan term, a 9.5-year yield maintenance protection term and a weighted-average life equal to or greater than 7 years. The trading desk will solicit offers from primary dealers through its investment manager and will purchase up to $1 billion in total, subject to reasonable market prices.

This week, the trading desk should operate on Tuesday, Thursday and Friday for a tentative total purchase amount of approximately $3 billion. Purchases will be made across fixed-rate FNMA DUS pools, fixed-rate Freddie Mac K-series Deals and Ginnie Mae Project Loan pools. The details for each operation will be disclosed one day prior to the operation.

Click here for the term sheet for agency CMBS purchases.

The Open Market Trading Desk said it will continue to adjust the schedule, size and composition of purchases as appropriate “to support smooth market functioning of agency CMBS markets.”