An American Securitization Forum report released Monday suggests market participants agree combining Fannie Mae/Freddie Mac mortgage-backed securities could eliminate pricing discrepancies between the two types of agency MBS, but there is disagreement on how to implement such a move.
The report said two key points of dissension are how to handle differing guarantee fees currently charged by the agencies, and whether to identify the government-sponsored enterprise issuing the single security.
Freddie traditionally offers mortgage originators a discounted fee compared to Fannie to normalize the pricing differential, something originator members said is desirable as it promotes competition and lowers costs in ways that benefit consumers.
However, the ASF said its investor members perceive the ability to price the guarantee fee separately as a key roadblock to making single-agency securities interchangeable and eliminating their pricing differences.
As far as whether to identify the underlying GSE issuing the single security, the group said its originator members believe that the new single security should not identify the underlying issuer.
In contrast, investor members believe it is necessary because the two agencies, while both government-sponsored, have different risk profiles.
