With the advent of the Single-Security Initiative, the single-family guarantee fee has been eliminated for another quarter, according to former CEO of Freddie Mac Don Layton. In post from the Harvard Joint Center for Housing Studies [1], Layton notes how the elimination of the “G-Fee” discount was a major reason why the Federal Housing Finance Agency (FHFA) directed the two entities to create a new common securitization platform along with a “single security” where the mortgage securities of the two companies would trade almost as one.
In June 2019, Fannie Mae and Freddie Mac launched the marked the completion of their Single Security Initiative with the launch of the Uniform Mortgage-Backed Security (UMBS), “the result of close collaboration with FHFA, Freddie Mac, Common Securitization Solutions, and hundreds of housing finance stakeholders and we congratulate all involved on this achievement,” said Renee Schultz, SVP, Capital Markets, Fannie Mae in a statement.
After the single-security’s implementation, the discount almost entirely disappeared. In the second full quarter of the new single security—the fourth quarter of 2019—Layton revealed that not only was there was no discount, but there was also a 0.01% premium.
While the 0.01% discount and 0.01% premium in wasn’t meaningful, Layton notes, “the historic discount has shown itself to have been eliminated for another quarter.”
According to Layton, the as Freddie Mac no longer has a reduced g-fee revenue stream, savings are produced for taxpayers, and “the combined liquidity of both GSEs should make the interest rate on the mortgage securities they issue a bit lower for both companies, which directly translates into a lower interest rate to homeowners on their mortgages,” said Layton.
“Lastly, and perhaps most importantly from a policy perspective, the combined liquidity of both GSEs should make the interest rate on the mortgage securities they issue a bit lower for both companies, which directly translates into a lower interest rate to homeowners on their mortgages.”
“Thus, one of the major reforms done while the GSEs have been in their unexpectedly long conservatorship is looking very much like a success,” Layton adds.