[Correction: Both the subhead of this article and the article itself have been altered to accurately reflect the nature of the potential announcement by the FHFA on the implementation timeline for the single security.]
The Federal Housing Finance Agency said Tuesday that the complicated process of developing a single security to be issued by both Fannie Mae and Freddie Mac is progressing well and, for the first time, provided a detailed look at the project’s timeline for implementation.
In an update provided Tuesday, the FHFA said that it currently anticipates making an announcement in 2016 in regards to the rollout of the implementation process for the single security – a process that will unfold in at least two phases.
The exact implementation date could still be years away due to the complex nature of the development of the single security, but the projected announcement of an implementation date is progress.
“Developing the CSP is a large scale, multi-faceted project,” said FHFA Director Mel Watt.
“This update details significant progress that has been made to date in building and testing the CSP, and toward launching a Single Security,” Watt continued. “Together, these projects will bring us much closer to the goal of improving the overall liquidity of the mortgage market. They will also reduce costs for Fannie Mae and Freddie Mac and taxpayers.”
The CSP that Watt is referring to is the Common Securitization Platform. The CSP is a technology and operational platform that is being developed by Common Securitization Solutions, the company formed last year by Fannie and Freddie to facilitate the design and implementation of the single GSE bond.
The CSP will perform many of the core back office operations for the single security, as well as most of the GSEs' current securitization functions for single-family mortgages.
The single security is a joint initiative of Fannie and Freddie to develop a single mortgage-backed security that will be issued by the GSEs to finance fixed-rate mortgage loans backed by one- to four-unit single-family properties.
In the announcement, the FHFA said that CSS and the GSEs are currently preparing for a two-phase rollout of the single security. The first of those phases is expected to be announced in 2016.
Freddie Mac will be the first of the two GSEs to use the Common Securitization Platform, the FHFA said in its updated.
The first phase of the rollout will have Freddie Mac using the Data Acceptance, Issuance Support, and Bond Administration modules within the CSP to “perform activities related to its current single-class, fixed-rate securities—Participation Certificates and Giant PCs—and certain activities related to the underlying mortgage loans (such as tracking unpaid principal balances),” the FHFA said in its announcement.
In its announcement, the FHFA said that the initial rollout of the single security will require the CSP to support data processing, “at the required scale,” for approximately nine million mortgage loans, 500,000 pools, and 250,000 securities.
Phase two of the rollout will allow both Fannie and Freddie to use the Data Acceptance, Issuance Support, Disclosure, and Bond Administration modules to perform activities related their current fixed-rate securities, both single- and multi-class; to issue Single Securities including commingled re-securitizations; and to perform activities related to the underlying loans, the FHFA said.
As part of the second phase, Fannie Mae will also use the CSP to issue and administer mortgage securities backed by adjustable-rate loans.
The FHFA said that as part of its 2016 Conservatorship Scorecards for the GSEs and CSS, it may provide information on the timing of the Enterprises’ use of the CSP to issue single securities.
The development of the single security has been one of Watt’s priorities for the GSEs, saying in first public speech as FHFA director that the FHFA is considering a new infrastructure for the securitization functions of Fannie Mae and Freddie Mac.
During his speech last May, Watt said that adjusting the way Fannie and Freddie securitize mortgages was one of the FHFA's key goals.
“After extensive discussion within FHFA and with the Enterprises, we have clarified that the agency’s top objective for the Common Securitization Platform is to make sure that it works for the benefit of Fannie Mae and Freddie Mac,” Watt said at the time.
To fulfill this goal, the GSEs have invested heavily into the Common Securitization Platform. According to the FHFA, from 2012 through mid-2015, the GSEs invested $146 million in CSS.
This investment financed the creation of detailed functional requirements for the CSP, the architectural design of the application, development and testing of the platform software, and the creation of an independent IT environment to support software development and testing.
The FHFA also said that it plans to continue the “extensive testing” of the CSP throughout the remainder of 2015.
The FHFA also stated in its announcement that all CSS employees are currently employees of Fannie Mae or Freddie Mac, but are “fully dedicated” to CSS activities and take direction from CSS officers.
As of August 2015, CSS was staffed with 140 associates and 275 contractors, the FHFA said.
CSS plans to convert the CSS associates into CSS employees in the first half of 2016.