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Investments / Lending

MBA’s Stevens: Single GSE bond is “critical”

New plan brings “unworkable fantasy” closer to reality

bonds

Earlier on Tuesday, the Federal Housing Finance Agency released its plans for a single security that could be offered by both Fannie Mae and Freddie Mac.

The FHFA’s “Single Security” plan calls for a shared securitization mechanism between the government-sponsored enterprises that would encompass many of the features of the existing Fannie and Freddie securitization structure.

In its statement, the FHFA said that simplifying the securitizations and offering a common one between the GSEs would help to “achieve maximum market liquidity.”

David Stevens, the president and CEO of the Mortgage Bankers Association, hailed the announcement and cited the potential of the single security to improve the health of the market for homebuyers and lenders alike.

“For more than two years, we have been talking to the GSEs, policymakers and a broad array of stakeholders about the widespread benefits of a fungible, pooled, 'to be announced'-eligible GSE securities market,” Stevens said.

“Today’s announcement takes what many told us was an unworkable fantasy and brings it closer to reality. The move to a single security will enable the two GSEs to compete on a more level playing field, and this competition will be beneficial to both homebuyers and lenders.”

In his statement, Stevens called the single security an “important” piece that could help transition the market into a new structure in the future with a “more flexible and efficient way” of trading securities. “Director Watt and his team deserve a lot of credit for moving forward on this critical initiative, and we look forward to working with FHFA and the GSEs on implementation,” Stevens added.

“FHFA’s goal for the proposed Single Security structure is for legacy Fannie Mae mortgage-backed securities and legacy Freddie Mac participation certificates to be fungible with the Single Security for purposes of fulfilling ‘to-be-announced’ contracts,” the FHFA said.

“Because the proposed Single Security design would include most of the features of the current Fannie Mae MBS, an exchange option for legacy Fannie Mae MBS to Single Securities may not be necessary,” the FHFA continued.

“To achieve the goal of maintaining maximum market liquidity, it is important to ensure that the legacy Freddie Mac PC is fully fungible with the Single Security as well. Therefore, if necessary, investors would be offered an option to exchange a legacy PC for a comparable Single Security.”

The “highly liquid” TBA market will be the initial focus of the plan, with an emphasis on 30-year and 15-year loans, the FHFA said.

Many throughout the entire housing industry would certainly welcome bringing more capital to the market.

The GSEs themselves are prepared for the next steps in what the FHFA called a “multiyear” process.

Andrew Bon Salle, executive vice president of single-family underwriting, pricing and capital markets for Fannie, said that Fannie is “committed to working with FHFA and Freddie Mac as we transition to a single security.”

Dave Lowman, executive vice president of single-family business at Freddie, echoed those sentiments. “We believe FHFA's request for input is a milestone on the path towards a more competitive and resilient housing finance system,” Lowman said.

“We share FHFA's vision of a more liquid and transparent single security that can make the secondary market even more efficient and keep homeownership within reach of America's working families,” Lowman continued.

“Freddie Mac is committed to expanding homeownership opportunities by working with FHFA, Fannie Mae, Common Securitization Solutions and other stakeholders to address the challenges of bringing a Single Security to the market."

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