Fannie Mae Said to Sell Boom-Era CMBS to Reduce Holdings

Fannie Mae plans to sell $2 billion of commercial-mortgage bonds issued before the credit market seizure as it seeks to reduce holdings of illiquid assets, according to three people familiar with the offering.

The government-controlled loan financier, which has returned to profitability after being taken over by U.S. regulators in 2008, is offering securities linked to apartment complexes and issued in 2006 and 2007, said the people, who asked not to be identified because terms aren’t public. The Washington-based lender may follow up with similar offerings in the next several months, the people said.

Demand for bonds backed by loans on commercial-properties from offices to hotels to strip malls is surging, sending values on the debt up by as much as 25 percent since December, according to Deutsche Bank AG. Executives at Fannie Mae and Freddie Mac were given a goal in March of selling off at least 5 percent of illiquid holdings this year as the Federal Housing Finance Agency seeks to make the firms smaller.

Andrew Wilson, a spokesman for Fannie Mae, said the company is working with the Federal Housing Finance Agency to meet conservatorship scorecard goals for this year.

Issuance Climbs

Sales of newly issued bonds tied to commercial mortgages are climbing, with sales poised to increase by more than 50 percent to $70 billion in 2013, according to Credit Suisse Group AG. Fannie Mae’s offering coincides with a transaction of about $1.2 billion from Wells Fargo & Co. and Royal Bank of Scotland Group Plc, according to data compiled by Bloomberg.

Fannie Mae reported a record quarterly profit of $8.1 billion last quarter as rising home prices boosted earnings. The lender is set to send $59.4 billion to the Treasury Department, bringing total payments to $95 billion. The company received $117 billion of taxpayer-funded capital infusions as losses on soured residential mortgages threatened to topple Fannie Mae and competitor Freddie Mac.

Freddie Mac, based in McLean, Virginia is starting to sell home-loan bonds without government backing to “take advantage of the strong improvement in bond prices,” and shrink its balance sheet to meet goals set by regulators, Tom Fitzgerald, a spokesman for Freddie Mac, said in a May 9 interview.

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