Discussion of a Proposed Single Agency Security

Abstract

This article is the American Securitization Forum’s response to the Strategic Plan issued by the Federal Housing Finance Agency, which, among other things, proposes to build a new infrastructure for Fannie Mae and Freddie Mac. It outlines the ASF’s various originator, investor, and dealer member views on a unified agency security (Single Agency Security) that could be substituted for Fannie Mae mortgage-backed securities (MBS) and Freddie Mac participation certificates (PCs), including recommended steps to minimize, or even eliminate, some of the pricing inefficiencies that currently exist in the market. The article presents industry views on current TBA market inefficiencies, items that would have to be standardized for Single Agency Securities to be fungible, and proposed characteristics of a Single Agency Security, including pooling, delivery, and remittance requirements; guidelines and underwriting systems for the origination and servicing of mortgage loans; disclosure and reporting standards; how guarantee fee pricing should be calculated; the nature of the guarantee; how existing Fannie Mae MBS and Freddie Mac PCs will be affected by the development of a Single Agency Security; and how the TBA market should function in a Single Agency Security regime. <b>TOPICS:</b>MBS and residential mortgage loans, legal and regulatory issues for structured finance