Fannie Mae and Freddie Mac soon will implement a new Uniform Mortgage-Backed Security (UMBS), the Federal Housing Finance Agency (FHFA) announced in March.
Beginning June 3, 2019, the new UMBS will be issued through the government-sponsored enterprises’ (GSEs) joint venture, Common Securitization Solutions, according to a press release. It will replace the current offerings of TBA-eligible mortgage-backed securities and be dependent upon the FHFA’s Common Securitization Platform (CSP), which was developed in tandem with the UMBS.
FHFA Director Melvin Watt said the announcement is intended to offer certainty to market participants regarding the timing of the transition to the UMBS and to enable them to make necessary preparations for a smooth transition.
“The transition to the new, common security requires planning, investment and preparation by a wide variety of market participants,” Watt said in the release. “We have now set the specific date that the enterprises will start issuing the UMBS and I urge the industry to get ready now to ensure smooth, successful implementation.”
Since November 2016, Freddie Mac has been using CSS operations for data acceptance, issuance support and bond administration activities related to current single-class, fixed-rate, mortgage-backed securities, in preparation for the introduction of the new UMBS. The GSE has used the CSP to process approximately 1,000 new securities each month and performing monthly bond administration functions related to 260,000 single class securities backed by approximately 9.8 million loans.
“The Federal Housing Finance Agency’s announcement provides market participants with important clarity on the June 2019 implementation of the new Uniform Mortgage-Backed Security,” Freddie Mac Executive Vice President of Single-Family Business Dave Lowman said in a statement. “With the first UMBS issuance in June, forward trading will likely occur in the first quarter of 2019. We encourage all participants to continue with their preparation to allow for a smooth transition. With our implementation in 2016 of the Common Securitization Platform, we paved the way for a combined Freddie Mac and Fannie Mae $3.5 trillion market of To-Be-Announced UMBS. We remain committed to working with the industry, under the direction of FHFA, to ensure the readiness of all parties involved in this complex undertaking.”
Fannie Mae will begin using the CSP and CSS operations on June 3, 2019 for the same functions for which Freddie Mac currently uses them. At that time, such operational capabilities will expand to include the administration of multi-class securities and commingled GSE UMBS and the production of UMBS disclosures, the release states. CSS and the CSP will then be performing bond administration functions for approximately 900,000 securities backed by nearly 26 million loans.
“The announcement provides additional clarity on the timeline for implementation of the Uniform Mortgage-Backed Securities,” Fannie Mae Executive Vice President of Single-Family Business Andrew Bon Salle said in a statement. “Our goal is to maintain a highly liquid housing finance market and create a stronger finance system.”
The Mortgage Bankers Association (MBA), which is part of the advisory panel formed by the joint venture of the GSEs to provide input on the development of the CSP and the UMBS, has noted its ongoing support for modernizing the GSEs’ business systems and software, along with the development of the UMBS. In a paper about the matter, the association listed potential impacts of such modernization.
MBA’s position is that the CSP will represent a dramatic upgrade from the GSEs’ current securitization infrastructures, which its members characterize as inflexible and antiquated. The association also believes that the CSP’s implementation could facilitate GSE reform by allowing multiple issuers to pool and issue qualifying securities in exchange for a future government guarantee, and that issuance of the new UMBS should improve liquidity in secondary mortgage markets by eliminating trading disparities that currently exist between securities issued by Fannie Mae and Freddie Mac.