The Week Ahead: GSEs Prepare to Launch UMBS

Fannie Mae and Freddie Mac will launch their uniform mortgage-backed securities (UMBS) on Monday, June 3.

Regarding the combined bond from the GSEs, a report by Bloomberg stated that this change would “virtually eliminate the distinction between bonds issued by Fannie Mae and Freddie Mac, which guarantee nearly half of U.S. residential mortgages,” with the combined security intended to help improve market market liquidity and mitigate investor risk.

While some believe this change will lower mortgage rates, critics argue the opposite may happen. Some see the combined bond as “more than five-year process to unify a roughly $4.4 trillion pile of agency MBS currently split between the two government-sponsored enterprises.”

“It already was the most liquid market in the world in many respects. What are they trying to fix, exactly?” Walt Schmidt, Head of Mortgage Strategies at FTN Financial in Chicago, told Bloomberg.

The final outcome can’t be determined until the combined bonds launch.

“To some extent June 3 will be a bit analogous to Y2K, you don’t know if everything will be successful until after the fact,” Jay Bacow, head of Morgan Stanley’s MBS research team, told Bloomberg. He added that “the mortgage market is second to Treasuries in terms of fixed-income liquidity and it’s challenging for us to see it losing that distinction under UMBS (Uniform Mortgage Backed Securities).”

In April, Freddie Mac announced that its Investor Reporting Change Initiative (IRCI) would revise single-family investor reporting requirements beginning in May 2019, including moving the investor reporting cycle from mid-month to end-of-month and updating remittance cycles.

The GSE states that it is making the changes to promote alignment and industry standards for the UMBS. In March, the Federal Housing Finance Agency

Here's what else is happening in The Week Ahead:

• Black Knight Mortgage Monitor—June 3
• CoreLogic Home Price Insights Report—June 4
• Ellie Mae Millennial Tracker—June 5
• Banking, Housing, and Urban Affairs Nomination Hearing—June 5
• Bureau of Labor Statistics Labor Date—June 7