Mortgage business stakeholders say a brand new 50 foundation level payment on some Fannie Mae and Freddie Mac securities runs counter to the premise of a uniform mortgage backed safety.
It’s a “money grab,” stated one business analyst, who requested anonymity to remain on good phrases with the federal government sponsored enterprises, who collectively again nearly all of the single-family mortgage market.
Stakeholders argue this coverage will harm the uniform mortgage backed safety course of, which permits two corporations, Fannie Mae and Freddie Mac, to challenge a typical safety composed of separate single securities. Multiple analysts, former FHFA and GSE officers contacted for this story requested anonymity to talk candidly and keep away from damaging relations with the GSEs.
Fannie Mae didn’t return a request to remark. Freddie Mac declined to remark.
Since 2019, the GSEs, whereas totally separate corporations, have issued uniform securities. This is achieved by repackaging present single securities to challenge Supers, or degree 2, securities. Those can embrace securities backed by both Fannie Mae or Freddie Mac loans. Starting July 1, every enterprise will cost a 50 bps payment on the portion of the safety made up of the opposite enterprise’s collateral.
Freddie Mac, in its press launch, defined how the brand new coverage would work. Starting July 1, if Freddie Mac have been to create a $500 million Freddie Mac safety from a mix of $200 million of Fannie Mae-issued commingled securities and $300 million of Freddie Mac-issued commingled securities, Freddie Mac would cost a 50 bps payment on the $200 million of Fannie Mae-issued collateral.
The transfer aligns with a portion of the brand new capital rule that assigns a 20% threat weight to securities issued by one GSE and included in securities created by the opposite. That coverage is a holdover from the earlier FHFA director, Mark Calabria.
An FHFA spokesperson stated that the brand new payment is a part of a “broad, comprehensive review of the Enterprises’ pricing framework,” which has to this point targeted on loan-level pricing. In mild of the Enterprise Regulatory Capital Framework and related capital planning rule issued earlier this month, the spokesperson stated, the GSEs are “evaluating their long-term capital allocation strategies.”
The company spokesperson additionally stated the brand new payment will “not impact borrowers,” and may have “no anticipated impacts on UMBS liquidity, pricing, or execution.”
The Structured Finance Association, which represents stakeholders within the securitization business, sharply disagreed with that evaluation.
In a press launch, the commerce group stated that the payment “appears to undermine the purposes of the UMBS, which risks impairing the fungibility of that security and the liquidity of the broader TBA market, thereby negatively impacting borrowers.”
The commerce group urged Fannie Mae and Freddie Mac to “delay and reconsider” the affect of the payment on borrowing prices earlier than implementing it.
Jaret Seiberg, a housing finance researcher at Cowen Washington Research, drew a connection between the brand new payment and the GSEs’ new emphasis on mission debtors, in a analysis observe he disseminated on Thursday.
“We have long known that FHFA Director Sandra Thompson is an affordable housing advocate,” Seiberg wrote. “Until today, we didn’t think her agency would push this part of the mission at the expense of market confidence.”
Other business stakeholders, nonetheless, see no connection to the subsidization of mission debtors. Seiberg didn’t return requests to remark.
Industry stakeholders had beforehand warned of this final result, when the thought of a 20% risk-weight was first proposed, in 2020.
Ed DeMarco, president of the Housing Policy Council, wrote in an August 2020 remark letter on the Enterprise Regulatory Capital Framework that the 20% threat weight would “result in higher capital costs for the Enterprises, which would incentivize higher guarantee fees and lower returns on UMBS, both of which will lead to higher costs for homebuyers.”
“Despite these higher costs for market participants, there does not appear to be a corresponding risk reduction to the overall housing finance system,” DeMarco wrote.
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