Fannie-Freddie Overseer Offers Update on Single-Security PlanJody Shenn
The federal overseer of Fannie Mae and Freddie Mac offered an update on an initiative that could transform a bond market powering U.S. housing.
The Federal Housing Finance Agency released information Friday on how it’s viewing feedback on its push to facilitate interchangeable trading of mortgage securities guaranteed by each of the taxpayer-backed companies.
Decisions so far “generally confirm” the so-called single-security plan that the FHFA set forth last year in a request for comments, the agency said in a paper that largely responded to suggestions with explanations on the perceived benefits of its approach.
The effort “remains a multi-year initiative,” FHFA Director Mel Watt said in a statement, that is meant to improve liquidity in the market for the two companies’ mortgage bonds, which now exceeds $4 trillion. It’s also intended to address the discount at which Freddie Mac’s securities trade because of their lesser volumes, which in turn requires the firm to offer compensation to lenders that lowers its profits.
Some market participants have expressed concern that the effort could make a key type of mortgage-bond trading less liquid, expose investors to new risks or unleash a difficult adjustment period.
Fannie Mae and Freddie Mac are being asked by the FHFA to finalize the single security’s structure this year and develop a plan to implement it. To fully work, the plan may also require acceptance by a Securities Industry & Financial Markets Association group that dictates trading conventions.
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