FAQs: Agency Commercial Mortgage-Backed Securities

November 3, 2021

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


Why did the Federal Reserve purchase agency CMBS?
The spread of COVID-19 substantially disrupted economic activity and affected many different sectors of the financial system, including the agency CMBS market. The Federal Open Market Committee (FOMC) directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to purchase agency CMBS as needed to support and sustain the smooth functioning of the agency CMBS market and the effective transmission of monetary policy. The Desk purchased 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.

Over what time period were agency CMBS purchased?
Agency CMBS were first purchased on March 27, 2020. On March 17,2021 the Desk noted that the agency CMBS purchase operation scheduled for March 23, 2021 was expected to be the last regularly-scheduled purchase operation. Effective November 4, 2021, the Desk is no longer directed to purchase agency CMBS as needed to sustain smooth functioning.

What was the approximate amount of total agency CMBS purchases?
A total of approximately $10.5 billion were purchased through March 23, 2021. Agency CMBS holdings in the SOMA portfolio can decline on a monthly basis due to the receipt of principal from amortization, principal prepayments and maturities. Agency CMBS principal payments are not reinvested.

Agency CMBS Reporting

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."

How does the Desk release operation pricing results?
In order to ensure the transparency of its agency CMBS transactions, the Desk publishes historical operation results at mid-month for the prior monthly period if any operations were conducted in such prior monthly period. 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.

Approved Counterparties

Who is an approved counterparty?
Approved counterparties include a subset of the primary dealers as well as other dealers who have applied for and received approval. On September 4, 2020 the New York Fed announced an expansion of approved counterparties in order to broaden access to the operations and increase the New York Fed’s operational capacity and reach into the agency CMBS market.

Who is eligible to transact in agency CMBS with the Federal Reserve?
All primary dealers are eligible agency CMBS counterparties. Some non-primary dealers are also eligible counterparties, and must meet the following criteria:

  • Be a U.S. broker-dealer registered with the Securities and Exchange Commission (SEC) and regulated as a member of the Financial Industry Regulatory Authority (FINRA).
  • Have net regulatory capital of at least $1 million and a minimum shareholders’ equity of $1 million, as of the date of submission of the expression of interest form.
  • Be able to demonstrate an active and established business presence in agency CMBS.
    • A firm may demonstrate an “active” business presence by having transacted in agency CMBS over the last year, preferably at volumes consistent with or above the prior two years. Applicants that have not been active or show a substantial drop-off in activity over the last year may either be rejected or be offered the opportunity to explain the decision to apply if they once had a sizeable presence prior to a year ago.
    • A firm may demonstrate an “established” presence by having been active in agency CMBS for at least 3 years.
  • Maintain sound organizational and satisfactory governance practices, financial condition, regulatory condition and internal controls.
  • Be able to demonstrate good faith efforts to support equal opportunity and diversity, including promoting the fair inclusion of women, minorities and veterans in the firm’s workforce, consistent with law.
    • “Good faith efforts” means efforts to identify and, if present, remove barriers to minority, women and veteran employment or to expand employment opportunities for minorities, women and veterans within the workforce such as expanding applicant pools through recruiting or advertising.
  • Be willing to carry out the responsibilities associated with the role, including by responding promptly and completely during the course of the application review and in the execution of counterparty duties.

Will the Desk continue to accept new counterparty applications for the agency CMBS program?
The Desk will not accept applications for new counterparties for agency CMBS at this time.

How did the New York Fed determine which non-primary dealers to approve as counterparties?
Selection remains within the New York Fed’s discretion and decisions regarding selection were made based on the factors outlined on the expression of interest and described above, considered in their totality.

How did the New York Fed include smaller firms and minority-, women-, and veteran-owned business entities in supporting the agency CMBS purchases?
The New York Fed is committed to diversity and inclusion in all aspects of its business and to the advancement of these values through our implementation of agency CMBS purchases. Smaller firms and minority-, women-, and veteran-owned business enterprises were encouraged to express their interest in serving in a counterparty capacity. All firms submitting an expression of interest were expected to provide information about their efforts to support equal opportunity and diversity, including the fair inclusion of women, minorities and veterans in their workforces.

What is expected of approved counterparties?
Approved counterparties were expected to meet all of the requirements of the role. For more information on the duties of a counterparty, please see the  Expression of Interest Form.

Does selection as a counterparty guarantee the ability to participate in any other market operations of the New York Fed?
No. Selected participants are only able to act as counterparty for agency CMBS transactions and not for any other market operations of the New York Fed or the 13(3) facilities.

FAQs: March 17, 2021 »

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