FAQ: Agency Commercial Mortgage-Backed Securities

Effective April 29, 2020

The following frequently asked questions (FAQs) provide further information about the Federal Reserve’s operations in agency commercial mortgage-backed securities (agency CMBS).

General

How does the Desk intend to implement the FOMC’s plan to purchase agency CMBS?
Effective March 23, 2020, the FOMC directed the Desk at the Federal Reserve Bank of New York to purchase agency CMBS on behalf of the SOMA. The Desk will purchase in the open market agency CMBS secured primarily by multifamily home mortgages that are guaranteed fully as to principal and interest by Fannie Mae, Freddie Mac, and Ginnie Mae. In addition, the Desk will reinvest all principal payments from the Federal Reserve’s holdings of agency CMBS in agency CMBS.

How will the Desk communicate its agency CMBS purchase amounts and schedule?
The Desk will publish information including upcoming operation dates, the time offers are due to the investment manager, security type and maximum purchase amount, in advance, typically the Friday before the coming week’s purchases.. However, the Desk may publish updates to its weekly schedule more frequently as required.

What types of agency CMBS will the Desk purchase?
The Desk will purchase in the open market agency CMBS secured primarily by multifamily home mortgages that are guaranteed fully as to principal and interest by Fannie Mae, Freddie Mac, and Ginnie Mae.

How much will the Desk purchase in agency CMBS and how will this be communicated?
Consistent with the FOMC directive, the Desk will purchase agency CMBS in the amounts needed to support smooth market functioning of agency CMBS markets. Purchases will be conducted on a regular basis, with the timing and size of operations guided by indicators of agency CMBS market functioning. The Desk may alter the purchase schedule due to either a change in guidance from the FOMC or if changes are warranted in order to promote smooth market functioning.

How will agency CMBS purchases be conducted?
On March 24, 2020, the New York Fed retained BlackRock Financial Markets Advisory as a third-party vendor to operationalize these purchases and transact with the primary dealers on behalf of the SOMA. BlackRock was selected on a short-term basis to serve as an investment manager after considering their expertise in trading and analyzing agency CMBS in the secondary market, and robust operational and technological capabilities.

The details for each operation will be disclosed at least one day prior to the operation. The Desk, through its investment manager, will solicit offers from primary dealers to purchase agency CMBS. Operations will be conducted using multiple-price, competitive operations with primary dealers. A "multiple-price" operation is one in which the same security can be awarded at different prices, with awards given to participants at a price corresponding with an individual offer submitted to the operation. The minimum lot size per CUSIP will be $5 million in current face value unless otherwise indicated in operation announcements. Offers will be evaluated for reasonable pricing and only the most competitive offers will be accepted. The purchase amount of agency CMBS will be based on the current face value of accepted securities. The term sheet for agency CMBS purchases can be found here.

How often will purchases take place?
Purchases will be conducted each week as needed. The Desk may adjust the size, frequency and composition of agency CMBS purchase operations as appropriate to support smooth functioning of the agency CMBS market.

Agency CMBS Reporting

How will the Desk communicate the operation results?
Results from agency CMBS operations will be posted on the New York Fed’s website following each operation. The information posted will include the total amount of offers received per operation, the total amount of offers accepted per operation, the security type, and the operation date. In addition, participating dealers will receive the operation results, including their accepted offers, through the investment manager following the close of the operation.

How will SOMA holdings of agency CMBS be reported?
Currently, settled agency CMBS holdings, at the CUSIP level, are reported on a weekly basis on the System Open Market Account Holdings of Domestic Securities webpage.

Total agency CMBS holdings will be reported after settlement occurs as part of the MBS line in table 1 on the H.4.1. statistical release titled "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks."

Will the Desk release operation pricing results?
Yes. In order to ensure the transparency of its agency CMBS transactions, the Desk will publish historical operation results for March at the end of April. This information will include CUSIP, operation date, trade amount, security type, and price paid.

Starting on May 14th, the Desk will publish historical operation results at mid-month for the prior monthly period. Operation results for the first half of April will also be published on May 14th.

In addition to the pricing information released each month, Section 1103 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires that detailed operational results, including counterparty names, be released two years after each quarterly transaction period.

Miscellaneous

Who is eligible to transact in agency CMBS with the Federal Reserve?
Primary dealers are eligible to submit offers on specific agency CMBS securities for sale to the Desk through the investment manager.

FAQs: April 3, 2020 »