US Is Looking to Offload Nearly $13 Billion of MBS Seized From SVB and Signature
The US government has been looking at ways to offload nearly $13 billion of mortgage bonds it amassed from failed lenders Silicon Valley Bank and Signature Bank, according to people with knowledge of the transactions.
The bonds are backed by long-term, low-rate loans made mainly to developers building affordable apartment buildings. They were part of a $114 billion portfolio that ended up with the Federal Deposit Insurance Corp. when it took over SVB and Signature.
The FDIC hired BlackRock Inc. to help liquidate the broader portfolio, and the money manager sold most of the assets within a few months. But BlackRock didn’t offload what has turned out to be the trickiest holding: about $12.7 billion of bonds tied to project loans supported by Ginnie Mae. The FDIC has discussed alternatives to slashing the prices on the bonds, including potentially repackaging the debt into new securities, the people with knowledge said.
BlackRock had preliminary conversations with investors about the bonds, according to the people, who asked not to be identified discussing non-public information. But the securities proved hard to sell in part because the bonds will probably pay below-market coupons for years. The loans backing them were made before the Federal Reserve started hiking, often come with high penalties if they are refinanced in their first 10 years, and can take decades to mature.
The project-loan bonds the FDIC aims to offload amount to the volume that Ginnie Mae often sells in about a year. The trouble with these bonds underscores the pain that failed banks can bring to the government, even after new lenders take them over.
“It’s a very large chunk of bonds, and there are so many factors here working against the easy liquidation of these assets,” said Richard Estabrook, a mortgage backed securities strategist at Oppenheimer & Co, who isn’t directly involved in the sale but has looked at the bonds. “By comparison, everything else was straightforward.”
BlackRock declined to comment. The FDIC confirmed the bonds were not part of the BlackRock sales process and declined further comment.