The Federal Housing Finance Agency announced Thursday that it is making progress on the implementation of the single securitization platform to be issued by both Fannie Mae and Freddie Mac, and, for the first time, provided a look at just when the common security will become a reality.
Last year, the FHFA revealed a detailed look at the project’s timeline for implementation, stating, at the time, that it planned to release a more detailed update on the implementation of the single security this year.
And that’s exactly what the FHFA did Thursday, disclosing that the single security could be fully implemented at some point in 2018.
Implementing the single security is an incredibly complex process that’s already taken years, and it’s likely to take several more years, the FHFA said.
The single security is a joint initiative from Fannie and Freddie to develop a single mortgage-backed security that will be issued by the government-sponsored enterprises to finance fixed-rate mortgage loans backed by one- to four-unit single-family properties.
The single security will be issued via the Common Securitization Platform, which is a technology and operational platform that is being developed by Common Securitization Solutions, the company formed in 2014 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.
Last year, the FHFA said that it anticipates the rollout of the implementation process for the single security to unfold in at least two phases, and the latest FHFA update confirms that rollout strategy.
As the FHFA said last year, Freddie Mac will be the first of the GSEs to use the Common Securitization Platform.
According to the FHFA, 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 Thursday that “Release 1,” the first phase of the single security rollout, is currently on schedule to be completed by the 4th quarter of this year.
The second phase of the rollout, “Release 2,” will see both GSEs begin to use the Data Acceptance, Issuance Support, Disclosure, and Bond Administration modules to perform activities related to their current fixed-rate securities, both single- and multi-class; to issue Single Securities, including commingled resecuritizations; and to perform activities related to the underlying loans.
According to the FHFA, Release 2 will also allow the GSEs to use the CSP to issue and administer certain non-TBA mortgage securities, including Fannie Mae securities backed by adjustable-rate mortgages.
The FHFA said that it anticipates the full implementation of Release 2 to be completed in 2018.
The FHFA also said that it currently expects to publish the full implementation timeline for Release 2 and the single security by the 4th quarter of this year.
According to the FHFA, this announcement will give industry stakeholders “at least 12 months” advance notice before the implementation date of the single security.
“FHFA will publicly announce the date on which the Enterprises will begin using the CSP to issue and administer the Enterprises’ Single Securities. This announcement will give industry stakeholders at least 12 months advance notice before the implementation date.
“This update reflects our ongoing commitment to transparency,” said FHFA Director Mel Watt.
“It also reflects the outstanding public and industry input and support we have already received and that we look forward to continuing to have as we move toward the goal of launching the CSP,” Watt continued. “The CSP and the Single Security are ambitious projects that we are confident should improve the overall efficiency and liquidity of the mortgage market and result in tremendous savings to taxpayers.”
In statements, both Fannie Mae and Freddie said they were looking forward to making more progress on the single security.
David Lowman, executive vice president, single-family business for Freddie Mac, said:
"Freddie Mac is meeting the milestones that will make the Single Security and a stronger housing finance system a reality,” Lowman said.
“We have completed joint system-to-system testing with Common Securitization Solutions as preparation for using their Common Securitization Platform for a range of activities related to Freddie Mac Participation Certificates and Giant PC issuance,” Lowman continued.
“The progress charted in the Federal Housing Finance Agency's latest update is leading to a more liquid TBA market and a stronger housing finance system,” Lowman added. “We look forward to working with FHFA, Fannie Mae, CSS and other stakeholders to reach the remaining milestones and bring the Single Security to market.”
Andrew Bon Salle, executive vice president, single-family business at Fannie Mae, said:
“Today’s update highlights the progress Fannie Mae has made to date working with FHFA, Freddie Mac, and Common Securitization Solutions to develop and bring the Single Security to market,” Bon Salle said.
“We continue taking steps to provide transparency around these efforts that will give market participants time to plan for and understand this change,” Bon Salle said. “We will move forward with this work, with the ultimate goal of increasing liquidity in the housing finance market and creating a stronger system.”
Additionally, the FHFA said that In addition to these milestones related to the development, testing, and implementation of the CSP and Single Security, CSS has also undertaken activities to allow itself to operate as a stand-alone company.
For example, in May 2016, CSS implemented human resource management systems and processes, which allowed the transition of staff from being employees of the GSEs to being employees of CSS.
For the FHFA’s full update on the single security, click here.