The Federal Housing Finance Agency (FHFA) is issuing a proposed rule to require Fannie Mae and Freddie Mac (the Enterprises) to align programs, policies, and practices that affect the prepayment rates of “To-Be-Announced” (TBA)-eligible mortgage-backed securities (MBS). The objective of the proposed rule is to enhance the overall liquidity of Enterprise TBA-eligible MBS by supporting their fungibility (mutual interchangeability) without regard to which Enterprise is the issuer. The rule would apply to both the Enterprises’ current offerings of TBA-eligible MBS and to the new Uniform Mortgage-Backed Security (UMBS) which will be implemented in June 2019.
FHFA, as conservator, has previously responded to industry input received during development of the Single Security Initiative by imposing alignment mandates on the Enterprises and publishing a Prepayment Monitoring Report. The proposed rule would codify the alignment mandates and, in turn, indicate to market participants that FHFA will require that the Enterprises seek to maintain consistent prepayment rates. This consistency is important to the success of the UMBS and, ultimately, to maintaining and improving the efficiency and liquidity of the secondary mortgage market.
FHFA invites interested parties to submit comments on the proposed rule via FHFA.gov within 60 days of publication in the Federal Register or via mail, FHFA, Eighth Floor, 400 Seventh Street SW, Washington D.C. 20219.