The Federal Housing Finance Agency (FHFA) recently issued an update to its mortgage-backed security (MBS) structure initiative, also known as Single Security. The new changes to the Single Security structure initiative is based on 23 responses to a “Request for Public Input: Proposed Single Security Structure (RFI)” released in August 2014 by the FHFA. The Single Security initiative is still in the works for approval and has not been enacted yet.
"FHFA's Update should give everyone a sense of how the Single Security will be developed and the solid progress that has been made over the past year,” said Dave Lowman, EVP of single-family business at Freddie Mac. “We strongly believe in the Single Security's potential for expanding liquidity in the TBA (to be announced) market, lowering housing finance costs, and making the housing finance system more competitive and resilient."
The 2014 Conservatorship Strategic Plan for GSEs Fannie Mae and Freddie Mac consisted of creating a single MBS that the enterprises could provide finance fixed-rate mortgage loans backed by one-four single-family unit properties. According to the FHFA, the initial goal was to assist in building a Common Securitization Platform (CSP) and support the statutory obligation to ensure the liquidity of the nation’s housing finance markets issued by the FHFA. Taxpayers would also not have to suffer the cost of subsidizing Freddie Mac’s securitization of single-family mortgage loans with the Single Security.
“Today’s Single Security Update is an important milestone, providing additional details on the features of the Single Security and the strong progress made to date by Fannie Mae, Freddie Mac, and Common Securitization Solutions (CSS) on implementation planning,” said Andrew Bon Salle, EVP of single-family business at Fannie Mae. “We will continue to work with FHFA, Freddie Mac, and CSS to ensure we transition to the Single Security in a safe and sound manner.”
Changes to Single Security Structure:
- Each Enterprise will issue and guarantee first-level Single Securities backed by mortgage loans that the Enterprise has acquired. The Enterprises will not cross-guarantee each other’s first-level securities. The Federal Home Loan Banks will not be an eligible issuer of Single Securities.
- The key features of the new Single Security will be the same as those of the current Fannie Mae MBS, including a payment delay of 55 days.
- First-level Single Securities will finance fixed-rate mortgage loans now eligible for financing through the TBA market.
- Lenders will continue to be able to contribute mortgage loans to multiple-lender pools.
- Each Enterprise will be able to issue second-level Single Securities (re-securitizations) backed by first- or second-level securities issued by either Enterprise.
- The loan- and security-level disclosures for Single Securities will closely resemble those of Freddie Mac PCs.
- Current Enterprise policies and practices related to the removal of mortgage loans from securities (buyouts) are substantially aligned today and will be generally similar and aligned for purposes of the Single Security.
- Freddie Mac will offer investors the option to exchange legacy PCs for comparable Single Securities backed by the same mortgage loans and will compensate investors for the cost of the change in the payment delay.
View the full Single Security update by clicking here.