MBA Newslink – Mike Sorohan
The Mortgage Bankers Association yesterday issued a Discussion Paper outlining creation of a common mortgage-backed security for Fannie Mae and Freddie Mac, saying it would enhance liquidity, reduce costs to taxpayers and lay the groundwork for a more competitive and efficient secondary market. The paper, Key Steps on the Road to GSE Reform, said aligning the securities into one fungible currency would continue efforts by the Federal Housing Finance Agency to operationally align the government-sponsored enterprises and could further enhance investor appetite in the housing market. The paper noted the liquidity of the TBA market for the Fannie Mae mortgage-backed securities is a public good/national asset that should be maintained and, if possible, enhanced. However, it said any transformation to an alternative model is “unnecessarily complicated” by the presence of two MBS markets, with frameworks that differ only due to difference in remittance timings associated with underlying cash flows, with a large favorable price differential to the Fannie Mae security that is not supported by underlying fundamentals but instead driven entirely by differences in liquidity.