FHFA Announces 2022 Deemed-Issuance Ratio

The Federal Housing Finance Agency on Monday announced the deemed-issuance ratio for the 2022 calendar year in accordance with Internal Revenue Service guidelines on trading the Uniform Mortgage-Backed Security.

The deemed-issuance-ratio will be used for diversification reporting on bonds ultimately delivered to the purchaser until the bonds have been disposed of, regardless of the issuing Enterprise on the underlying bonds.

The IRS Revenue Procedure 2018-54 provides that the ratio may be rounded as long as the rounded ratio is further from 50/50 than the actual observed data. This year, the deemed-issuance ratio is 56 percent Fannie Mae and 44 percent Freddie Mac.

The IRS procedure provides guidance on section 817(h) of the Internal Revenue Code diversification requirements for variable annuity, endowment and life insurance contracts. The IRS has provided a deemed-issuance-ratio to allocate issuer exposure for TBA trades between Fannie Mae and Freddie Mac. Compliance with these requirements is affected by implementation of and trading in UMBS.