The Federal Housing Finance Agency (FHFA) has announced the deemed-issuance ratio for the 2022 calendar year in accordance with Internal Revenue Service (IRS) guidelines on the trading of the Uniform Mortgage-Backed Security (UMBS).
The deemed-issuance-ratio is used for diversification reporting on the 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 if the rounded ratio is further from 50/50 than the actual observed data. The deemed-issuance ratio for 2022 calendar year is 56% Fannie Mae, and 44% 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 the Government-Sponsored Enterprises (GSEs). Compliance with these requirements is affected by the implementation of and trading in UMBS.
Revenue Procedure 2018-54 calls for the FHFA to determine a deemed-issuance ratio for each calendar year based on the ratio of TBA-eligible securities issued by the GSEs during the 24-month period ending October 31 of the preceding year.