Fannie Mae is looking to broaden its social and green bond offerings after a debut re-securitization of loans tied to affordable housing that meet social bond criteria priced last week at the tightest levels achieved in the agency's "GeMS" program since it began in 2011.
The US$315m social multi-family DUS REMIC transaction, FNA 2021-M1S, priced last Thursday and was its first from the GeMS shelf to be issued under a new sustainable bond framework rolled out in November last year.
The framework supports the agency's developing corporate ESG strategy and builds on its efforts in the green bond space, where it has so far issued US$87bn of multi-family green financing and US$110m of green financing in a new program in its single family residential business since last year.
"Our sustainable bond framework was an effort to increase the transparency around these opportunities, and to focus our effort to better address the affordable housing crisis in the US and the needs of underserved communities in our country," said Lisa Bozzelli, senior director of multi-family capital markets at Fannie Mae.
A GEM OF A DEAL
The GeMS shelf bundles mortgage securities tied to single properties into a tranched bond offering.
This was its first deal backed by collateral that met the new social bond criteria, with the 26 properties across California, Florida and Texas all providing affordable housing.
The deal was well received, with the agency achieving its lowest spreads for any GeMS offering since the program began following the 2008 recession, according to Bozzelli.
"Agency CMBS spreads have been grinding tighter through the whole second half of last year and we’ve been fortunate to see that trend continue this month," she said.
The six-year A1 and 10-year A2 tranches both tightened 2bp from price guidance to land at 15bp and 21bp over swaps. That was inside the levels seen on equivalent tranches in a regular GeMS deal on January 8, FNA 2021-M1, which priced at 19bp and 26bp respectively.
"The pricing is great but what we are really looking for is increased liquidity. We were pleased with the number and diversity of investors who participated," said Bozzelli.
"Over 60% of investors in the book provided some level of ESG mandate for their reason for participation, so we want to continue our market outreach effort for our green and social bonds and try to attract these investors to the DUS and GeMS product," she said.
The agency is expecting to issue around two to three of these social, green or sustainable GeMS deals per year.
Future social bonds could be tied to other kinds of collateral.
For example last year the agency provided US$7.8bn in financing for rent-restricted properties and properties receiving other federal and state subsidies, US$5.5bn for manufactured housing communities, US$1.5bn for properties with rent restrictions between 60 percent and 80 percent area median income (AMI), and provided US$13bn green financing.
Around 20%-30% of the agency's single property MBS issuance ultimately flow into the GeMS REMIC securitization shelf.
Future issuances under the GeMS shelf could also focus on green housing, with those deals distinguished with a "G" in the deal ticker, rather than an "S" as in FNA 2021-M1S.
"Sustainable" issuances may be tied to securities that fit both green and social criteria.
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