Freddie Mac mortgage securities continue to underperform Fannie Mae MBS in terms of liquidity and pricing, according to Moody’s Analytics chief economist Mark Zandi, who suggested a quick fix to address the disparity.
“A potential near-term fix to this problem would be to make Fannie and Freddie securities fungible, creating a common TBA security,” Zandi told the Senate Banking Committee Thursday.
The TBA (to-be-announced) good-delivery guidelines would need to be changed, he said, to allow the delivery of either Fannie or Freddie securities into the same contract.
“The securities themselves would not be changed: their separate TBA markets would simply be merged,” he testified.
Back in May, the Mortgage Bankers Association issued a
Zandi noted that the liquidity problem is very real. The trading volume of Fannie MBS is 10 times greater than Freddie Participation Certificates. “To compensate, Freddie is forced to charge a lower guarantee fee than Fannie,” Zandi said. Fannie’s average g-fee was 57 basis points, compared with Freddie’s 51 basis points in the second quarter.
Freddie Mac also incurs other costs in supporting the liquidity and pricing of its PCs. “In some circumstances, we compensate customers for the difference in price between our PCs and comparable Fannie Mae securities,” the GSE said in its 2012 annual financial report.
