The Federal Housing Finance Agency (FHFA) earlier this week 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. The report calls on market participants to begin preparing for the transition to CSP, which FHFA says will be fully implemented in the second quarter of 2019.
The CSP is designed to support the GSEs’ single-family securitization activities. FHFA hopes that other market participants will be able to utilize CSP as well sometime in the future.
According to the report, the first phase of the transition, referred to as “Release 1,” was implemented successfully when Freddie Mac late last year began to trade its current MBSs (known as Participation Certificates) through the newly developed CSP. Through October 2017, Freddie Mac has utilized the CSP to issue nearly 1,000 new securities worth around $55 billion. Freddie Mac has also used the CSP to administer 260,000 previously issued securities. In addition, during a test conducted in May, the CSP was able to successfully transfer back and forth from its primary system to its emergency back-up system without interrupting business.
FHFA, Fannie Mae and Freddie Mac are now working to complete the second phase of the transition (Release 2), in which both Fannie Mae and Freddie Mac 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 finds that Release 2 is still on schedule to be implemented in the second quarter of 2019, and urges all industry participants to prepare. FHFA had initially hoped to implement the CSP sometime in 2018, but extended the deadline in March.
The report highlights several steps FHFA has taken to help market participants adapt to the CSP, including publishing its Market Adoption Playbook, a video outlining the CSP and UMBS, and a detailed implementation schedule. In a press release announcing the new report, FHFA Director Mel Watt pledges to increase FHFA’s engagement with industry participants as implementation approaches.