Home > Securitization > News on Securitization > FHFA puts Fannie Mae and Freddie Mac on the same boat for securitisation operations

 

March 16, 2013:

US housing regulator The Federal Housing Finance Agency (FHFA) vide its news release dated March 4, 2013 provided future goals for the mortgage finance giants Fannie Mae and Freddie Mac. FHFA released its 2013 Conservatorship Scorecard[1] for the two US mortgage giants outlining a detailed plan which included instructions to combine their securitisation operations among other things. The scorecard depicts in details the course of action for Fannie Mae and Freddie Mac which are based on the FHFA's Strategic Plan for Enterprise Conservatorships released and announced in 2012[2]. The FHFA identifies threefold objective:1.      

1.      Building of a new securitisation infrastructure which will include a common securitisation platform for both;

2.      Simplifying of activities of both to reduce their market dominance; and

3.      Introducing and maintaining foreclosure prevention activities while encouraging credit availability for new and refinanced mortgages.

Now, we may have a look at the point wise description of the objectives.

A New Infrastructure

In the new infrastructure, FHFA proposes to establish a Common Securitisation Platform (CSP). Both the housing finance entities should in collaboration with the FHFA design and develop a structural framework for the CSP.

Contractual and Disclosure Framework (CDF)

An efficient CDF framework should be implemented to meet the investor requirements and the credit risks associated with the secondary mortgage market. This will include formulation of standards for data collection with the implementation of a Uniform Mortgage Data Program(UMDP) for the Enterprises.

Simplification of activities to reduce market dominance

FHFA opts for the below classification:       

  • Single Family: Each Enterprise will be liable for measuring the viability of risk transfer transactions of diverse nature involving single family mortgages. The minimum limit for such transactions will be USD 30 billion of Unpaid Principle Balance (UPB) in the year 2013. Transactions below USD 10 billion will not be treated as eligible transactions while transactions between USD 10 billion and USD 30 billion will receive partial credit.

  • Multi-Family: A reduction in the UPB by at least 10 percent by adjusting pricing policies and bringing about a limit in the product offerings.

  •  Retained Portfolio: Reduction in the retained portfolio balance of December 31, 2012 by selling 5 percent of the assets. Sales between 0 to 5 percent will be allotted partial credit.

Maintaining foreclosure prevention activities and facilitating credit availability for new and refinanced mortgages

FHFA is keen on bringing about regulatory changes and amendment in the existing norms to ensure better transparency and efficiency in the system. The main aim is to reduce losses and safeguarding the investor interests.

Overall, the FHFA is all set to take full control with much stringent norms and guidelines for the US housing sector. Post the financial crisis it has taken much of the tax payer's money to bring back the US housing sector on its feet. So, the regulator is now much cautious in taking steps forward.

 

 

[Reported by : Piyush Sinha]