True Stories: Hybrid, eNote and RON Implementation

Join expert panelists that will discuss the status of federal legislation, trends in digital adoption and how best to prepare your organization for the next generation of lending processes.

Spruce’s Patrick Burns on innovation in title technology

In the season finale of Housing News season 5, Spruce CEO discusses heightened investor interest in title tech, innovation and fintech adoption.

Top CFPB official “hates” QM rules, jeopardizing safe harbor

A top CFPB official in charge of the rule-making process has heavily criticized the agency's own qualifying mortgage rule, jeopardizing safe harbor.

Don’t sleep on non-QM products

Now is the perfect time for originators to consider expanding to non-QM products – to grow business, diversify their offerings and to ensure an opportunity to better serve their customers.


Urban Institute: Launch of FHFA’s single security was “flawless”

Says uniform security lays important groundwork for GSE reform

In June, the Federal Housing Finance Agency announced that its long-laid plans to launch a single security for loans backed by Fannie Mae and Freddie Mac had finally come to fruition.

Now, mortgage-backed securities for the GSEs are issued under a single security – Uniform MBS – replacing Fannie's MBS and Freddie's Participation Certificates so the two enterprises can trade in the same market.

The move was one the agency called “momentous,” noting that it will cut costs for American homebuyers.

Now, with two months of UMBS in play, the Urban Institute is praising the successful launch of this “enormous undertaking,” which dramatically transformed a $5 trillion financial market.

“The smooth functioning of this market is critical to U.S. homebuyers’ ability to get a mortgage, so the stakes for the launch of the UMBS were high and the launch had to be flawless. And it was,” researchers Karan Kaul and Laurie Goodman wrote in a recent paper on the topic.

In essence, the single security eliminates the liquidity differences that existed between the two markets, as Freddie’s lagging market reduced profits, ultimately taking money away from taxpayers.

But now, with UMBS in action, the playing field has been leveled, and so far, investor appetite appears to not have wavered.

“Early data on UMBS trading volumes – a key metric of how investors are reacting to the new security – are very encouraging,” the researchers noted. “The average daily trading volume for agency MBS (which includes the UMBS) was higher in June ($267 billion) than it was in April ($250 billion) or May ($232 billion), according to the Securities Industry and Financial Markets Association. There was no decline in MBS pricing attributable to the launch of the UMBS.”

A sizable portion of Freddie Mac securities has also been converted into new securities in preparation for entering UMBS, another promising sign.

“Although we need several months of data for further verification, early data suggest the launch has gone very smoothly,” the researchers stated.

And the success of the UMBS launch, they asserted, is critical because of the important groundwork it lays for future GSE reform.

“By reducing the significant competitive advantage that Fannie enjoyed over Freddie, it also helps open the way to additional competitors over time,” they wrote. “It is still difficult to imagine how a new entrant would overcome the legacy players’ enormous liquidity advantage, but moving to a single security helps ease that barrier.”

While they go on to note that the UMBS doesn’t entirely remove the significant barriers to entry, they do call it a “a meaningful first step” because it aligns the business policies and systems of the players involved, and this will make things easier for new guarantors.

“The creation of the UMBS is an important step forward in the current system,” the researchers concluded. “It not only removes an expensive inefficiency in the current system, but it also lays the groundwork for deeper structural reforms in the years to come.”

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