Andrew Patterson - Associate Finance Officer, Seattle
Fed to Purchase Mortgages with $800 billion – The Federal Reserve Bank will purchase as much as $600 billion in Fannie Mae & Freddie Mac debt and will set up a program to lend $200 billion for consumer and small business loans. “This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally,” the Fed said.
AIG Re-Capitalization & Citigroup Rescue – The original $85 billion bailout plan for AIG has undergone a massive overhaul as the US government buys $40 billion in preferred AIG shares using TARP. The goal is to effectively cancel credit default swap agreements, secured by real estate assets, sold by AIG to thousands of banks and institutions, in an effort to stave off losses on the banks swap investments and mortgage backed securities. In a similar situation, Citigroup will receive $20 billion in fresh capital and a government guarantee for losses on about $300 billion in “toxic assets”.
November Rate Volatility – The volatility in the market impacted the benchmarks for commercial real estate lending severely in the month of November. The 10 year US Treasury dropped almost 100 basis points during the month, to the lowest level in recent decades. 30-day LIBOR continued its two month decline of over 300 basis points as regulators cut inter-bank lending rates worldwide. Overall the impact on “all in” commercial mortgage rates has been almost negligible. As these benchmark rates have dropped, many lenders have adjusted their spread, resulting in similar “all in” rates to past months.