Fannie and Freddie Another Step Closer to Sharing Single Mortgage-Backed Security
The Federal Housing Finance Agency
(FHFA) moved another step closer on Tuesday to its strategic goal of issuing a
single mortgage-backed security (MBS) under the aegis of both of the government
sponsored enterprises (GSEs) Freddie Mac and Fannie Mae. The agency has issued a request for input
from interested stockholders on the security which is part of its efforts to
develop a Common Securitization Platform (CSP).
Under the current plan the proposed Single
Security would leverage the GSEs' existing security structures and would
encompass many of the pooling features of the current Fannie Mae MBS and more
of the disclosure framework of the current Freddie Mac Participation
At a press conference held for
background only on Tuesday afternoon representatives of the two GSEs and FHFA
said the ultimate goal for the new structure is for the legacy MBS and PC
securities to be fungible or transferable with the new security. Because so many features of the existing
Fannie Mae MBS will be included in the new security an exchange option for
legacy MBS might not be necessary but to achieve maximum market liquidity it is
important to insure the fungibility of the Freddie Mac PCs. There are currently $2.7 trillion in Fannie
Mae MBS and $1.5 trillion in Freddie Mac PCs outstanding.
The Single Security is to have seven key
would be issued and guaranteed by either Freddie Mac or Fannie Mae. It would be a first level securitization with
underlying collateral owned 100 percent by the relevant GSE and there would be
no commingling of loans from the GSEs at this level.
Single Security would have common features that exist in the current market
including a payment delay of 55 days, pooling prefixes, minimum pool submission
amounts, general loan requirements such as non-delinquent status and good title,
seasoning requirements, and loan repurchase, substitution and removal
initial focus of the Single Security would be the highly liquid market for TBA
eligible fixed rate mortgages with emphasis on 15-year and 30-year loans but
provisions for those of 10 and 20 year duration.
security would continue to enable multiple lender pools.
level securitizations or re-securitizations of first-level securities would be
permitted and these could contain comingled securities from the two GSEs and
combinations of Single Securities and legacy securities.
disclosure framework for the Single Security is closely aligned with that of
Freddie Mac's PC disclosures
GSEs would maintain their separate Servicing and Selling Guides and continue
certain alignment activities as outlined in the 2014 Strategic Plan.
FHFA foresees the Single Security
initiative as a multi-year effort and does not yet have a date for its
implementation. However its intention is
to implement the securities for both GSEs at the same time. In its request for input FHFA is
inviting feedback on all aspects of the proposed Single Security structure but
is particularly interested in feedback on four questions:
What key factors regarding TBA eligibility
status should be considered?
issues should be considered in seeking to ensure broad market liquidity for the
operational, system, policy, or other effects on the industry and stakeholders
should be considered?
can be done to ensure a smooth implementation of a Single Security with minimal
risk of market disruption?
The deadline for input is October 13,
2014. More information on the proposed
Single Security and details on submitting input are available at www.FHFA.gov.