Tag Archives: legacy securities

Reiss on The FHFA’s Common Securitization Platform

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I have submitted my response to the FHFA’s Request for Input on the Proposed Single Security Structure.  The abstract for my response, The FHFA’s Proposed Single Security Structure, reads,

The Federal Housing Finance Agency (FHFA) has posted a Request for Input on “the proposed structure for a Single Security that would be issued and guaranteed by Fannie Mae or Freddie Mac.”  The FHFA states it is most concerned with achieving “maximum secondary market liquidity” (Request for Input, at 8)

I am skeptical about the reasons for this move to a Single Security and whether it will achieve maximum liquidity. Moreover, it is unclear to me that this move reflects an urgent need for the FHFA, the two companies, originating lenders or borrowers. While I have no doubt that it could slightly increase liquidity and slightly decrease the cost of credit, I do not see this move as having a meaningful effect on either.

This move is consistent, however, with a move toward a new model of government-supported housing finance, one that could contemplate an end to Fannie and Freddie as we know them and the beginning of a more utility-like securitizer.  If, indeed, the FHFA is taking this step, it should be more explicit as to its reasons for doing so.

Fannie+Freddie=FRANNIE?!?

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The Federal Housing Finance Agency (FHFA) has posted a Request for Input on “the proposed structure for a Single Security that would be issued and guaranteed by Fannie Mae or Freddie Mac.” The FHFA’s press release states that

The Single Security project is intended to improve the overall liquidity of Fannie Mae and Freddie Mac mortgage-backed securities by creating a Single Security that is eligible for trading in the to-be-announced (TBA) market.  FHFA is requesting public input on all aspects of the proposed Single Security structure and is especially focused on issues regarding the transition from the current system to a Single Security.  Specific questions FHFA is asking relate to TBA eligibility, legacy Fannie Mae and Freddie Mac securities, potential industry impact of the Single Security initiative, and the risk of market disruption.

 The particular questions for which the FHFA invites feedback are

  1. What key factors regarding TBA eligibility status should be considered in the design of and transition to a Single Security?
  2. What issues should be considered in seeking to ensure broad market liquidity for the legacy securities?
  3. As discussed above, this is a multi-year initiative with many stakeholders. What operational, system, policy (e.g., investment guideline), or other effects on the industry should be considered?
  4. What can be done to ensure a smooth implementation of a Single Security with minimal risk of market disruption? (8)

The FHFA states it is most concerned with achieving “maximum secondary market liquidity,” so it is particularly interested “in views on how to preserve TBA eligibility and ensure that legacy MBS [mortgage-backed securities] and PCs [participation certificates] are fully fungible with the Single Security.” (8)

I must say that I am a little skeptical about the reasons for this move to a Single Security. It is unclear to me that this is an urgent need for the FHFA, the two companies, originating lenders or borrowers. While I have no doubt that it could slightly increase liquidity and slightly decrease the cost of credit, I do not see this move as having a dramatic effect on either.

I would say, though, that this move is consistent with an agenda to move toward a new model of government-supported housing finance, one that could contemplate an end to Fannie and Freddie as we know them and the beginning of a more utility-like securitizer like those proposed in the Johnson-Crapo and Corker-Warner bills. Perhaps the regulator will lead the way to housing finance reform when Congress and the Executive have failed to do so . . ..

Input is due by October 13, 2014.