Daiwa, Fannie Mae create new multi-family financing conduit

Real Estate Weekly, March 23, 1994

Daiwa Securities American and Fannie Mac (Federal National Mortgage Association) have announced a new, $155.9 million Alternative Credit Enhancement Structures (ACES) transaction that creates a Fannie Mac Multi-family Mortgage Backed Security (MBS) backed by loans originated through Daiwa Securities' multi-family conduit. The design of the Fannie Mac ACES transaction provides credit support to Fannie Mac in return for guaranteeing the MBS.

The new ACES MBS used a senior/subordinate structure. Loans originated through Daiwa's multi-family conduit were swapped for Fannie Mac MBS pools. As the securities were created, some securities were designated to be subordinate to provide credit enhancement to the remaining pools. Previously, Fannie Mae would create multi-family MBS pools and then request subordination from the originator in the form of cash or securities unrelated to the deal.

"This new ACES structure represents yet another way to provide financing flexibility and increased liquidity for multi-family properties," said Richard Lawch, vice president of multi-family affordable housing and negotiated transactions. "Fannie Mac expects this flexible, multi-class financing structure ultimately will increase the funds available for affordable housing by giving portfolio lenders more options to package loans for sale on the secondary mortgage market," Lawch said.

"We have funded close to $500 million in multi-family loans through our conduit and are continuing at a strong pace," said Paul W. Nidenberg, managing director in the mortgage and asset-backed securities group of Daiwa Securities. Conduit loans exchanged for MBS in the ACES structure are being used to create a multi-family REMIC, according to Daiwa's Nidenberg, who expects this ACES transaction to be the first in an ongoing program.

"We have worked hard to ensure that all our loans are of the highest quality, and we're pleased that Fannie Mac considers them deserving of their stamp of approval. Our transactions with Fannie Mac has allowed us recently to lower spreads at which our conduit partners originate new products."

"The credit support was designed to be marketable to investors who typically buy subordinated class of other mortgage-backed securities," Lawch said.

Four originators comprise Daiwa's multi-family conduit: Continental Wingate Associates of Boston; Hanover Capital Partners, Inc. of St. Louis; The Patrician Financial Company of Bethesta, MD; and Washington Mortgage Financial Group, Ltd. of Vienna, VA.