The Federal Housing Finance Agency proposed a framework for a common securitization platform and a model pooling and servicing agreement. The agency is seeking input from the public until Dec. 3.
The plan, originally announced in February, is intended to repair the nation's mortgage finance space by creating a secondary market that serves both Fannie Mae and Freddie Mac as well as a post-conservatorship market with multiple future issuers. The platform will also be expected to support the emergence of a private mortgage securitization market.
The FHFA says the proposed infrastructure has two goals: Replace the outmoded proprietary infrastructures of the government-sponsored enterprises with a common, more efficient model and establish a framework that is consistent with multiple states of housing finance reform, including greater participation of private capital in assuming credit risk.
The envisioned platform would bundle mortgages into an array of securities structures and provide all the operational support to process and track the payments from borrowers through to the investors from the time a security is created until its ultimate payoff.
The FHFA says the platform must maintain existing secondary market liquidity, while also enabling the entry and participation of private capital.
“This means, for example, that the platform should be able to support the current TBA market and securities across a range of fixed and adjustable rates,” the FHFA says. “Consistent with this, the platform should include the high level of automation necessary to process the current volume of industry issuance — more than $100 billion per month.”
Tom Deutsch, executive director of the American Securitization Forum, applauded the FHFA’s efforts.
“The FHFA’s new white paper includes a number of proposals and positions which the ASF strongly supports and has advocated for,” Deutsch said. “For example, in our single security white paper last July, our originator and agency investor members indicated strong support for standardizing many of the operations and requirements of Fannie Mae and Freddie Mac in order to eliminate pricing inefficiencies in the TBA market.”
The new securitization platform would support the distribution of credit risk to the private sector through various credit risk sharing arrangements. It would also support securities guaranteed by either government or private sector entities, where most or much of the risk of individual loan defaults may first be absorbed by other private sector credit enhancers.
Privately guaranteed securities would be similar in nature to the guarantee provided by Fannie and Freddie today, but might be different in the future, with multiple guarantors assuming credit risk at either the loan level or the security level.
“The goal of the platform is to be flexible enough to support all potential options and help bring transparency to investors,” the agency says. “In addition, the platform could facilitate the return of private capital by supporting various options for credit investors to participate in the market.