Government launches unified MBS platform for Fannie, Freddie

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The consolidation of Fannie Mae and Freddie Mac's securitization platforms into a unified bond market became official on Monday.

Officials with the Federal Housing Finance Agency, Fannie Mae and Freddie Mac announced the launch of the uniform mortgage-backed security, which has been in the works since 2012. Freddie implemented the common securitization platform for certain securities in 2016; now both Fannie and Freddie will use the common vehicle.

"We have gone live on the UMBS. We are bringing together two separate [to-be-announced] markets into one," said Robert Fishman, a deputy director of the Federal Housing Finance Agency, in a press call Monday. "The goal of this project, this initiative, has been to increase the overall liquidity of the MBS market by bringing two TBAs together. In addition, by reducing the pricing disparity in Fannie's and Freddie's securities, we should save taxpayer money. It's a momentous day."

Fishman declined to estimate the taxpayer savings that could result from the single security. Common Securitization Solutions, the government-sponsored enterprises' joint venture in charge of the project, has spent $900 million over several years to bring it to fruition, he said. There have been unspecified internal costs for the two GSEs as well.

So far, investors and dealers have promised to deliver more than $3 trillion worth of the new security in the forward market. Roughly $90 billion worth of Freddie Mac's old 45-day payment delay securities have been exchanged for the new 55-day payment delay bonds, said Freddie Mac Senior Vice President Mark Hanson on the call. "All signs are quite positive," he said.

Investors can elect to retain their 45-day payment delay bonds, but 45-day TBA settlements are no longer available and the two GSEs will both issue fungible securities with the traditional 55-day delay for Fannie Mae bonds.

The FHFA will be providing ongoing monitoring and reports on securities performance to ensure the cash flows from the new bonds remain in "reasonable consistent ranges," said Liz Scholz, associate director in the FHFA's office of strategic initiatives.

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GSEs MBS GSE reform FHFA Freddie Mac Fannie Mae