U.S. Regulator Proposes Uniform System for Mortgage Securities

The U.S. overseer of Fannie Mae and Freddie Mac, planning for when the companies are eliminated or their role diminished, is seeking input on a system to standardize the packaging of home loans into securities.

The plan would create a common method of issuing bonds, overseeing servicers, making payments to investors, and tracking loan performance, among other things, the Federal Housing Finance Administration said in a white paper released yesterday. It would also standardize pooling and servicing contracts underlying the securities.

The system could be used either by Fannie Mae and Freddie Mac or by issuers of private-label securities, FHFA said.

“The securitization infrastructure could serve as a utility that would outlast Fannie Mae and Freddie Mac as we know them,” Edward J. DeMarco, acting director of FHFA, said in a statement.

The proposal is part of the regulator’s effort to lay the groundwork for the two government-sponsored enterprises to shrink or be wound down entirely. Fannie Mae and Freddie Mac have operated under U.S. conservatorship since 2008.

Neither Congress nor President Barack Obama have moved forward with plans to overhaul the housing-finance system and determine the companies’ fate. Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac dominate the U.S. mortgage market.

About 75 percent of mortgage securities are created by the two enterprises, which pool home loans for sale to investors and guarantee interest and principal payments. The other 25 percent are issued by Ginnie Mae, which pools loans insured by the Federal Housing Administration, FHFA said.

FHFA’s Push

FHFA has been pushing Fannie Mae and Freddie Mac to standardize their operations to reduce taxpayers’ costs and make it easier for sellers, servicers and investors to work with the two companies. Under the proposed system, Fannie Mae and Freddie Mac would each continue to guarantee their own securities.

Whatever form the two companies take in the future, the platform could also be used by issuers of private-label securities, FHFA said.

“There are certain elements for rebuilding the housing finance system that are needed regardless of its ultimate structure,” the FHFA said in its proposal.

Tom Deutsch, executive director of the American Securitization Form, said in a statement that the New York-based trade group supports efforts to return private capital to the mortgage market.

“We do caution, however, about any efforts that may compel private market participants to use a one-size-fits-all regulatory regime that could stifle innovation and prevents issuers and investors from working together to meet each other’s origination and investment preferences,” he said in the statement.

Public comments on the plan can be e-mailed to SecuritizationInfrastructure@fhfa.gov. The deadline is Dec. 3.

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