FHFA takes major step in building single securitization platform
Three years after the Treasury department announced a need for a move back to a mortgage market financed predominately by private capital, the Federal Housing Finance Agency outlined the initial steps it will take to do that -- including the creation of a new business entity between Fannie Mae and Freddie Mac.
FHFA leader Ed DeMarco said Monday, "We believe that setting up a new structure that is separate from the two companies is important for building a new secondary mortgage market infrastructure. Our objective, as we stated last year, is for the platform to be able to function like a market utility, as opposed to rebuilding the proprietary infrastructures of Fannie Mae and Freddie Mac."
The new venture will be led by a CEO and a chairman of the board that are independent from Fannie Mae and Freddie Mac, according to DeMarco.
"It will also be physically located separate from Fannie Mae and Freddie Mac. Importantly, we plan on instituting a formal structure to allow for input from industry participants." The platform will initialy be owned and funded by Fannie and Freddie, with it designed to operate as a replacement for some of the GSEs legacy infrastructure, according to DeMarco
"However, the overarching goal is to create something of value that could either be sold or used by policy makers as a foundational element of the mortgage market of the future," he explained. "We are designing this to be flexible so that the long-term ownership structure can be adjusted to meet the goals and direction that policymakers may set forth for housing finance reform."
FHFA Acting Director Edward DeMarco released these details in what he calls the 2013 Conservatorship Scorecard for Fannie Mae and Freddie Mac. The report outlines specific steps the agency plans to take in 2013 to create a common securitization platform. (Click here for the full scorecard).
The plan aligns with the FHFA’s previously announced goals of creating a securitization structure that the private-label market can later build upon, eventually shrinking Fannie Mae and Freddie Mac’s presence in the housing finance market.
"A great deal of progress was made in 2012 and we are ready to move to the next phase," said DeMarco. "The steps outlined in the 2013 Scorecard lay a strong foundation for the secondary mortgage market of the future."
This year, DeMarco said the FHFA plan is to establish the initial ownership and governance structure of the common securitization platform, while also developing requirements for it and creating the initial business operational model.
In addition, the plan calls for initial testing of the platform and public reports from the FHFA on how the strucuture is being designed and implemented.
This year, the FHFA also plans to develop the contractual framework, as well as disclosures, that will essentially guide the securitization process, making investors more willing to take a risk on mortgage securities again.
The goal the FHFA says is for each GSE to demonstrate the viability of different types of risk transfer transactions tied to single-family mortgages with at least $30 billion of unpaid principal balances.
In the multifamily segment, FHFA hopes to reduce the unpaid principal balance amount of all new multifamily business by at least 10% from 2012 to 2013.
Overall, FHFA would like to reduce the retained portfolio balance by 5% of all assets, starting from the balance reached at the end of December.