A common securitization platform and a single GSE bond is coming soon enough from the Federal Housing Finance Agency, and while details are still under discussion the mortgage banking industry is weighing in with their thoughts.
The Mortgage Bankers Association, for two years, backs the idea of a single GSE security rather than separate securities issued by the Fannie Mae and Freddie Mac.
“Adopting a single security would enable the GSEs to compete on a more level playing field, providing benefits to homebuyers, taxpayers and lenders,” says David Stevens, president and CEO of the MBA in a letter to the FHFA. “Ending the trading differential between Fannie Mae and Freddie Mac securities should make our housing finance system more efficient, allowing borrowers to receive the best price on their respective loans. It should also eliminate the Market-Adjusted Pricing payments.”
The MBA says that this would be entirely consistent with sustaining the GSEs’ important role within the current market, while also providing a bridge to an even more competitive and efficient market following reform along the lines of recently proposed legislation.
“Additionally, a single security is a key step on the path to GSE reform, a bipartisan goal shared by both Houses of Congress and this Administration. Indeed, a common, ‘qualified’ security formed the basis of the Johnson-Crapo Bill that was voted out of the Senate Banking Committee earlier this year,” Stevens says. “For these reasons, MBA commends FHFA for exercising leadership in this debate and producing a strong concept for the structure and functioning of a single GSE security.”
Although FHFA has been clear regarding the importance of this issue, MBA believes that the extended timeframe to implementation poses a potentially unacceptable risk to its successful completion.
Market participants need sufficient time to prepare for the change, MBA says, but a multi-year timeframe coupled with the linkage of the single security to the as yet undeveloped common securitization platform pose a risk that the status quo will continue to prevail. FHFA should act quickly to have the GSEs make the necessary changes to their processes within a relatively short timeframe and uncouple the single security process from the worthy, but necessarily complicated development of the CSP.
“If the GSEs are unable to utilize their own systems in the near-term to issue the single security, FHFA should move instead to other solutions such as MBA’s transition steps proposal that FHFA seek an opinion from the Securities Industry and Financial Markets Association deeming the Fannie MBS and Freddie PC fungible for TBA purposes,” Stevens says.
Meanwhile, the National Association of Federal Credit Unions supports the FHFA’s proposal to improve the overall liquidity of the GSEs by creating a single security eligible to be traded in the to-be-announced market.
NAFCU believes that the proposal has the potential to reduce the training and compliance burdens for credit unions that transact business with the GSEs and to allow greater accessibility to the TBA market.
“NAFCU encourages the FHFA to continue to pursue a transparent and level playing field and to avoid unnecessary exclusions or special options that would give a comparative advantage only to certain types of market participants in transactions involving the single security and in the TBA market in general,” says Angela Meyster
senior regulatory affairs counsel for NAFCU. “NAFCU also urges the FHFA to ensure that any existing GSE securities held by credit unions do not lose their marketability after the introduction of any single security.”
NAFCU says that the FHFA should strive to meet its goal of full fungibility between legacy and new securities and, should the market demonstrate a distinct preference for the new single security, allow credit unions to exchange legacy securities for new ones.
The FHFA should also seek to prevent the single security and TBA market from having a negative impact on the marketability or price of loans sold by credit unions to the GSEs.