FHFA Issues Rulemaking on Uniform Mortgage-Backed Security

The Federal Housing Finance Agency yesterday issued a proposed rule to require Fannie Mae and Freddie Mac to align programs, policies and practices that affect prepayment rates of “To-Be-Announced”-eligible mortgage-backed securities.

FHFA, which serves as conservator of Fannie Mae and Freddie Mac, said the objective of the proposed rule (https://www.fhfa.gov/SupervisionRegulation/Rules/Pages/Uniform-Mortgage-Backed-Security.aspx) is to enhance overall liquidity of Enterprise TBA-eligible MBS by supporting their fungibility (mutual interchangeability) without regard to which Enterprise is the issuer.

The rule would apply to both the Enterprises’ current offerings of TBA-eligible MBS and to the new Uniform Mortgage-Backed Security, scheduled to be implemented in June 2019.

The Mortgage Bankers Association, in its landmark 2017 White Paper on GSE reform (https://www.mba.org/issues/gse-reform), called on regulators to replace the implied government guarantee of Fannie Mae and Freddie Mac with an explicit guarantee at MBS level, supported by a federal insurance fund with appropriately priced premiums.

FHFA said it had previously responded to industry input received during development of the Single Security Initiative by imposing alignment mandates on the GSEs and publishing a Prepayment Monitoring Report. The proposed rule would codify the alignment mandates and, in turn, indicate to market participants that FHFA will require that the Enterprises seek to maintain consistent prepayment rates.

“This consistency is important to the success of the UMBS and, ultimately, to maintaining and improving the efficiency and liquidity of the secondary mortgage market,” FHFA said.

FHFA invited comments on the proposed rule via www.FHFA.gov within 60 days of publication in the Federal Register.