Fannie and Freddie Another Step Closer to Sharing Single Mortgage-Backed Security

The Federal Housing Finance Agencyrn(FHFA) moved another step closer on Tuesday to its strategic goal of issuing arnsingle mortgage-backed security (MBS) under the aegis of both of the governmentrnsponsored enterprises (GSEs) Freddie Mac and Fannie Mae.  The agency has issued a request for inputrnfrom interested stockholders on the security which is part of its efforts torndevelop a Common Securitization Platform (CSP).</p

Under the current plan the proposed SinglernSecurity would leverage the GSEs’ existing security structures and wouldrnencompass many of the pooling features of the current Fannie Mae MBS and morernof the disclosure framework of the current Freddie Mac ParticipationrnCertificate (PIC).</p

At a press conference held forrnbackground only on Tuesday afternoon representatives of the two GSEs and FHFArnsaid the ultimate goal for the new structure is for the legacy MBS and PCrnsecurities to be fungible or transferable with the new security.  Because so many features of the existingrnFannie Mae MBS will be included in the new security an exchange option forrnlegacy MBS might not be necessary but to achieve maximum market liquidity it isrnimportant to insure the fungibility of the Freddie Mac PCs.  There are currently $2.7 trillion in FanniernMae MBS and $1.5 trillion in Freddie Mac PCs outstanding.</p

The Single Security is to have seven keyrnfeatures.  </p

1.     rnItrnwould be issued and guaranteed by either Freddie Mac or Fannie Mae.  It would be a first level securitization withrnunderlying collateral owned 100 percent by the relevant GSE and there would bernno commingling of loans from the GSEs at this level.</p

2.     rnThernSingle Security would have common features that exist in the current marketrnincluding a payment delay of 55 days, pooling prefixes, minimum pool submissionrnamounts, general loan requirements such as non-delinquent status and good title,rnseasoning requirements, and loan repurchase, substitution and removalrnguidelines</p

3.     rnTherninitial focus of the Single Security would be the highly liquid market for TBArneligible fixed rate mortgages with emphasis on 15-year and 30-year loans butrnprovisions for those of 10 and 20 year duration.</p

4.     rnThernsecurity would continue to enable multiple lender pools.</p

5.     rnSecondrnlevel securitizations or re-securitizations of first-level securities would bernpermitted and these could contain comingled securities from the two GSEs andrncombinations of Single Securities and legacy securities.</p

6.     rnTherndisclosure framework for the Single Security is closely aligned with that ofrnFreddie Mac’s PC disclosures</p

7.     rnThernGSEs would maintain their separate Servicing and Selling Guides and continuerncertain alignment activities as outlined in the 2014 Strategic Plan.</p

FHFA foresees the Single Securityrninitiative as a multi-year effort and does not yet have a date for itsrnimplementation.  However its intention isrnto implement the securities for both GSEs at the same time.  In its request for input FHFA isrninviting feedback on all aspects of the proposed Single Security structure butrnis particularly interested in feedback on four questions:</p

1.     rn What key factors regarding TBA eligibilityrnstatus should be considered?</p

2.     rnWhatrnissues should be considered in seeking to ensure broad market liquidity for thernlegacy securities:</p

3.     rnWhatrnoperational, system, policy, or other effects on the industry and stakeholdersrnshould be considered?</p

4.     rnWhatrncan be done to ensure a smooth implementation of a Single Security with minimalrnrisk of market disruption?</p

The deadline for input is October 13,rn2014.  More information on the proposedrnSingle Security and details on submitting input are available at www.FHFA.gov.

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