Fannie Mae (QB)【FNMA】株式ニュース

$Boooom ! - Five Years Later, the $UMBS is $Paying $Dividends for $Housing $Finance

Corporate | December 17, 2024

Barbara Pak - Freddie Mac Vice President, Single-Family Securitization

As we mark the five-year anniversary of the Uniform Mortgage-Backed Security (UMBS), we reflect on its history, its benefits and our commitment to it in the years ahead.

In 2019, trades of the newly launched UMBS were recorded for the first time. The UMBS market, created in collaboration between Freddie Mac and Fannie Mae, borrowed from established market standards but relied on the Enterprises’ expertise to create a single mortgage-backed security that resulted in a more competitive environment and greater market liquidity for investors.

The History of the Uniform Mortgage-Backed Security Market
The concept of a unified mortgage securities market was proposed to increase competitiveness and liquidity in the to-be-announced (TBA) market, where Freddie Mac and Fannie Mae mortgage-backed securities trade. The ultimate goal was to maintain or lower the cost of housing finance, which has potential benefits for homebuyers.

But there was work to be done to turn the concept into a reality.

A single, unified market would not be possible if the securities issued by the Enterprises were valued differently by market participants. To solve for this, we worked to ensure the performance of Freddie Mac and Fannie Mae securities were comparable. This involved two core efforts:

A focus on the loans Freddie Mac purchased: If key characteristics were not aligned between loans pooled by Freddie Mac and Fannie Mae, the resulting security would prepay differently, and prepayment speeds affect the value investors derive from the security. So we began to actively monitor and manage characteristics, including Weighted Average Coupon, loan size and seller mix, to ensure alignment.

A focus on how Freddie Mac packaged its loans: Freddie Mac started pooling loans in larger MultiLender pools with loans from many lenders to manage the prepayment risk present in some single-lender pools. The market approved of this strategy and demand for these large, liquid, predictable and diversified pools increased.
The final hurdle was the maintenance of alignment of UMBS prepayment rates over time. In February 2019, FHFA issued the Uniform Mortgage-Backed Securities Rule to regulate the alignment of prepayment rates through established thresholds and required monitoring and reporting of any misalignment.

This rule, as well as additional regulatory requirements implemented since 2019, have helped address market concerns and allowed market participants to accept the UMBS construct.

UMBS Benefits
Since we introduced the UMBS five years ago, its benefits both to Freddie Mac and the market have been clear. Specifically, markets and investors have benefitted from greater liquidity and less uncertainty around prepayments — factors that have remained aligned regardless of greater economic challenges.

Moreover, this initiative has reduced splintering of the TBA market that was occurring previously. Investors are now less likely to put stipulations, or restrictions, on trades than before UMBS, indicating they do not differentiate between the Enterprises’ UMBS. The reduction in stipulated trading also amplifies the liquidity benefit of the UMBS market.

The UMBS also has eliminated the price differential that previously existed between the securities issued by Freddie Mac and Fannie Mae.

What’s more, UMBS performance benefits have been achieved without any disruptions to the market. This could be clearly seen during the refinance wave of 2020 and early 2021, which featured some of the highest levels of sustained prepayment rates ever recorded. Despite this, the divergence between prepayment rates at Freddie Mac and Fannie Mae was much more muted than in previous refinance waves. This result is attributed to work done in support of the UMBS.

Those who are buying a home or refinancing their mortgage benefit from UMBS as well. Overall, the UMBS has increased the liquidity of the Enterprises’ most widely traded security. Greater liquidity lowers the price investors demand when they purchase the security, which potentially helps keep interest rates lower on the home purchase and refinance loans that back those securities.

Our Continued Commitment
As we look ahead, we remain committed to our alignment on UMBS, which is key to the success of the market. But we also expect to innovate, looking for new ways to better serve borrowers, lenders and investors.

In doing so, we will consider potential impacts to the UMBS market because, if the past five years are any indication, the market has become important mechanism for helping Freddie Mac provide liquidity to the U.S. housing market.

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