For the third year running, Fannie Mae ranked first for credit enhancement in the tax-exempt multifamily housing market.
According to statistics from Thomson Financial Securities Data, Fannie Mae used its triple-A credit rating to back more than $610 million in new and refunded housing bonds last year. That was down from the $765 million it backed in 1998 but still put it at the top of the market.
The data confirms the rise of Fannie Mae in the housing credit enhancement market as well as the growing dominance of government-sponsored enterprises in general -- also present in the top five were Ginnie Mae and Freddie Mac.
By virtue of the role they play in the bond insurance market, MBIA Insurance Corp. and Financial Security Assurance were also among the top housing bond credit enhancers.
Officials from Fannie Mae said in a telephone interview that the ranking showed they are meeting the goal of supporting affordable housing development, but they also pointed out that the data is not complete. In 1999, they said, Fannie Mae stepped up the competition by altering the terms it uses to accommodate housing bond sellers who are switching credit enhancement.
Richard Lawch, vice president in charge of the multifamily capital markets group, explained that a bond seller with a direct-pay letter of credit from a bank, for instance, faced hurdles switching to Fannie Mae before the LOC expired. Those hurdles have been dismantled, he said.
"We dabbled with substitutions in '97 and'98," Lawch said. "We came out with a vengeance to do substitutions in '99."
The firm's volume of substitutions in 1999, he added, was in the area of $400 million, and was not included in the Securities Data numbers.
In addition to substitutions, Fannie Mae also expanded into backing of variable-rate housing bonds issued for new construction last year. All together, Fannie Mae officials stressed, the firm is making adjustments to its programs as the market for housing evolves.
Around two-thirds of the credit enhancement agreements done by Fannie Mae are for variable-rate debt, added Manny Menendez, director in the capital markets group, while the balance is fixed-rate.
"I think '99 showed that there was a need for substitutions," Menendez said, "and Fannie Mae responded appropriately."
Added Lawch: "Going forward, we've got an ongoing effort to revise documents to make it cheaper and easier for borrowers. As we see the market shift, we'll respond with additional enhancements."
