FHFA Delays Implementation of GSE Single Security and Platform
The Federal Housing Finance Agency (FHFA) earlier today released a report providing an update on its efforts to develop a common structure and Common Securitization Platform (CSP) for mortgage-backed securities (MBS) guaranteed and sold by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. FHFA is developing the common security and trading infrastructure to facilitate more efficient trading of GSE MBSs and to eliminate pricing disparities between Fannie Mae and Freddie Mac MBSs.
The report notes that the first phase of the transition, referred to as “Release 1,” was finished on time late last year when Freddie Mac began to trade its current MBSs (known as Participation Certificates and Giants) through the newly developed CSP. The CSP is designed to support the GSEs’ single-family securitization activities. FHFA hopes that other market participants will able to utilize CSP as well sometime in the future.
FHFA’s report says it is now working to complete the second phase of the transition (Release 2), in which both GSEs will adopt and begin issuing the new Uniform Mortgage-Backed Securities (UMBS), instead of their current separate MBSs, and sell the new securities through CSP. The report announces that the deadline for completing this phase has been extended from 2018 to the second quarter of 2019 so FHFA may seek more input from market participants and they have more time to prepare.
The report also provides a brief accounting of the costs associated with developing the UMBS and CSP, which has been paid for by the GSEs. Through 2016, the GSEs have spent $504 million on these efforts, which are expected to cost an additional $616 million through 2019. The report says the GSEs would have incurred such costs even if the UMBS and CSP weren’t being developed because they would have needed to update their trading infrastructures. The report also argues these expenses will help save the GSEs money in the long run through increased efficiency.