Government Lending

FHFA puts kibosh on CSS issuing non-GSE securities

New chair of the Common Securitization Solutions board signals a return to the core mission of supporting Fannie Mae and Freddie Mac securities

Former banker Matthew Feldman has been named chairman of the board of managers at the Federal Housing Finance Agencycontrolled Common Securitization Solutions, where he will lead a transition to better align the organization’s “corporate governance structure with its core mission,” FHFA announced today.

That core mission is to provide the infrastructure to support government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac in issuing mortgage-backed securities. Feldman has a banking background, serving as president and CEO of the Federal Home Loan Bank of Chicago from 2008 through 2020 and prior to that as president of Continental Trust Co. — a subsidiary of Continental Bank.

“In early 2020, FHFA explored expanding the role of CSS to serve a broader market,” FHFA stated in a press release announcing Feldman’s appointment as chair. “After a nearly two-year review, FHFA determined that CSS should instead focus on maintaining the resiliency of the enterprises’ mortgage-backed securities platform. This decision allows CSS to stay focused on the safety and soundness of the housing-finance market and reduce unnecessary expenses as the enterprises rebuild capital.”

Part of that now-abandoned “broader market” plan, favored by former FHFA Director Mark Calabria, included requiring the CSS platform to issue securities for proposed newly-chartered GSE competitors.

“I reiterate my recommendation that Congress remove unnecessary statutory exemptions and other advantages afforded the enterprises [GSEs] and grant FHFA the authorities, similar to those of other financial regulators, to develop capital standards for the enterprises and to issue new enterprise charters,” Calabria said in a statement to Congress in June 2020.

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CSS, operating under the umbrella of FHFA, serves as an agent for the GSEs to facilitate issuing single-family mortgage securities and supports the GSE’s issuance of a common single MBS —known as the Uniform Mortgage-Backed Security, or UMBS. “FHA required the GSEs to jointly develop a platform to facilitate various tasks associated with their securitization processes,” an April 2021 report by the Congressional Research Service explains. “The GSEs entered into a joint venture, the Common Securitization Solutions, which acts as a technology service provider for the GSEs.”

A March 2019 report by the FHFA Office of Inspector General reported that its “review of internal FHFA documents found that, as of February 2019, FHFA [projected] a total of $2.13 billion in costs for development of the [CSS] platform and integration by the enterprises by June 30, 2019,” when the UMBS was launched. The report concluded that FHFA failed to disclose to Congress or the public what it knew about actual and projected costs for creating the common securitization platform.

The FHFA’s recent change of focus, the FHFA press release added, resulted in an exodus of the independent members from the CSS board of managers who were “brought on as part of the CSS market-expansion activity.” In January 2020, CSS amended its board structure, expanding its membership from four to nine members. Anthony Renzi will remain as CEO of CSS and a board member, FHFA said.

“I am fully confident that Matt Feldman will be vigilant in overseeing this transition and in ensuring that CSS focuses first and foremost on supporting the securities platform and serving its owners, Fannie Mae and Freddie Mac,” said FHFA Acting Director Sandra Thompson. “I am also pleased that Tony Renzi will remain as CEO given his strong leadership over CSS operations.”

GSEs Fannie Mae and Freddie Mac launched the UMBS in June 2019. The combined security replaced Fannie’s MBS and Freddie’s participation certificates (PCs), allowing the two GSEs to trade in the same market.

The chief goal of the common security is to reduce costs for the GSEs and taxpayers, which come from “persistent difference in the liquidity of Fannie Mae MBS and Freddie Mac PCs,” HousingWire reported at the time the UMBS was first issued more than two years ago.

“I look forward to working with the board during this transition and am committed to ensuring CSS is focused on supporting the enterprises’ mortgage securitization activities in a safe and sound manner,” Feldman said in a prepared statement.

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