FHFA's Vision of a Single GSE Security

WASHINGTON, DC—And so it begins. On Tuesday the Federal Housing Finance Agency announced it was seeking input on the structure of a proposed single security encompassing holdings from both Fannie Mae and Freddie Mac. This would be the first step in a multi-year process to reform the GSEs, it said. Having a single security, instead of the current situation in which each GSE issues its own securities, would also boost liquidity for housing financing.

The proposed single security would leverage the GSEs' existing security structures and encompass many of the pooling features of the current Fannie Mae Mortgage Backed Security and most of the disclosure framework of the current Freddie Mac Participation Certificate, the FHFA said.

The development is hardly a surprise to the market; The 2014 FHFA Scorecard for Fannie Mae and Freddie Mac required the GSEs to identify what would be necessary to create a single security.

The FHFA has initial thoughts on what the single security should look like. According to its statement issued on Tuesday, it expects the single security would be issued and guaranteed by either Fannie Mae or Freddie Mac.

It would be a first-level securitization that would contain underlying mortgage loans acquired either 100% by Fannie Mae or 100% by Freddie Mac. There would be no commingling of loans purchased by Freddie Mac and Fannie Mae at this first-level of single security formation. Other features that are part of the current GSE framework and would be part of a the single security include:

• A payment delay of 55 days;

• Pooling prefixes;

• Mortgage coupon pooling requirements;

• Minimum pool submission amounts;

• General loan requirements such as first lien position, good title, and Non-delinquent status;

• Seasoning requirements; and

• Loan repurchase, substitution and removal guidelines.

The FHFA does not have a timetable for when this single security would come to market.