Beginning on June 3, 2019, the GSEs will begin issuing a new common security known as the Uniform Mortgage-Backed Security (UMBS). The Federal Housing Finance Agency announced the change on Wednesday, revealing that the common securities will replace the Enterprises’ current offerings of To-Be-Announced-eligible mortgage-backed securities. The UMBS will be issued through the Enterprises' joint venture, Common Securitization Solutions (CSS), using the Common Securitization Platform (CSP).
"The transition to the new, common security requires planning, investment, and preparation by a wide variety of market participants," said FHFA Director Melvin L. Watt. "We have now set the specific date that the Enterprises will start issuing the UMBS and I urge the industry to get ready now to ensure smooth, successful implementation."
According to the FHFA statement, the announcement is timed to coincide with the GSEs and CSS having hit three milestones: “completion of key application development for issuance of the UMBS on the CSP, completion of system-to-system testing, and initiation of end-to-end (pre-parallel) testing.”
The FHFA reports that Freddie Mac began using CSS for data acceptance, issuance Support, and bond administration activities related to current single-class, fixed-rate, MBS back in November 2016. CSS has also been using the CSP to process approximately 1,000 new securities per month, as well as performing bond administration functions related to 260,000 single-class securities backed by approximately 9.8 million loans.
The FHFA statement explains that, after the June 2019 launch, “CSP and CSS “will expand to include the administration of multi-class securities and commingled Enterprise UMBS and the production of UMBS disclosures.” CSS and CSP will thereafter begin performing bond administration functions for close to 900,000 securities backed by nearly 26 million loans.
“Today's announcement provides additional clarity on the timeline for implementation of the Uniform Mortgage-Backed Securities,” said Andrew Bon Salle, EVP, Single-Family Business, Fannie Mae. “Working with FHFA, Freddie Mac, and Common Securitization Solutions, we are focused on providing transparency to ensure market participants have the time to plan for and understand this transition. Our goal is to maintain a highly liquid housing finance market and create a stronger finance system.”
“The Federal Housing Finance Agency's announcement today provides market participants with important clarity on the June 2019 implementation of the new Uniform Mortgage-Backed Security,” said David Lowman, EVP of Freddie Mac's Single-Family Business. “With the first UMBS issuance in June, forward trading will likely occur in the first quarter of 2019. We encourage all participants to continue with their preparation to allow for a smooth transition. With our implementation in 2016 of the Common Securitization Platform, we paved the way for a combined Freddie Mac and Fannie Mae $3.5 trillion market of To-Be-Announced UMBS. We remain committed to working with the industry, under the direction of FHFA, to ensure the readiness of all parties involved in this complex undertaking."