FHFA merges GSE securities to single program in bid to cut housing costs for millions

As of Monday, Freddie Mac and Fannie Mae mortgage-backed securities will be issued under a single securities program – the Uniform MBS – in a move some have called the biggest change to the mortgage securities market in a generation.

The Federal Housing Finance Agency is finally seeing its long-laid plans to create a single securities program for the GSEs come to fruition, a step the agency called “momentous” and said will cut costs for American homebuyers.

“The mortgage world has changed today,” FHFA Deputy Director Robert Fishman said on a call with reporters Monday. 

What is the UMBS program and what will it really mean for the U.S. mortgage market?

The Uniform MBS program is a single securities program through which Fannie and Freddie will finance qualifying fixed-rate mortgage loans backed by one- to four-unit single-family properties.

Plans for the development of a single securities market were first laid in 2012, and in February the FHFA issued a final rule to guide participants as the implementations date neared.

Previously, the GSEs issued securities through their own programs, which meant that an inevitable disparity persisted between the two. Fannie’s program has historically been far more liquid that Freddie’s, creating an imbalance between their trading volumes.

Now, FHFA will require Freddie to give homeowners’ mortgage payments to investors in 55 days rather than 45, which is consistent with Fannie’s guidelines. Bundling the securities together is also expected to better sync their prepayment speeds, which can have a great effect on the value of a pool of loans.

The idea is that combining both types of securities will increase the amount traded in a single day, enabling investors to accept lower returns and leading to a drop in yields, which may translate into lower interest rates for homebuyers.  

Fishman, the FHFA deputy director, said the UMBS program will benefit the housing market by eliminating the liquidity difference between the two GSEs.

​“Today marks the official launch of the new Uniform Mortgage-Backed Security, a significant milestone that combines the separate Fannie Mae and Freddie Mac To-Be-Announced markets into one, bringing additional liquidity and efficiency to the market,” Fishman said in a statement. “By addressing structural issues and trading disparities, the UMBS will benefit taxpayers and the nation’s housing finance system.”

On a call with reporters, Fishman said: “The goal of this project, this initiative, has been to increase overall liquidity of the MBS market by bringing two TBAs together. In addition, by reducing the pricing disparities from Fannie and Freddie securities, we should save taxpayer money.”

Mark Hanson, Freddie Mac’s senior vice president of securitization, said UMBS is one of the most significant accomplishments in the agency’s longstanding mission to improve housing finance.

“Americans will benefit from the efficiency and standardization brought about by this new common security. The success of the initiative is a direct result of Freddie Mac’s collaboration with Fannie Mae, Common Securitization Solutions, FHFA, and thousands across the U.S. housing finance industry,” Hanson said. “We are grateful for their hard work, and we join them in celebrating this achievement.”