TheMReport

TH E M R EP O RT | 61 SECONDARY MARKET THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T taxpayers from mortgage credit risk, and ensure that a reformed system creates incentives for prudent and sustainable mortgage lending." "Importantly, the Chairman's Outline recognizes the impor - tance of maintaining a system where private mortgage insurance (MI) bridges the gap of saving 20% of the home price for a down payment; a threshold that is out of reach for many home-ready borrowers," Johnson said. "We applaud the specific require - ment for loan-level coverage MI (insuring individual loans) for high LTV mortgages at standard coverage levels—up to 35% of the loan value." Additionally, she said the out - line provided an opportunity for MIs and other market participants to guarantee mortgage-backed securities (MBS). "USMI supports the concept of requiring that mortgages meet standards akin to today's ATR/QM Rule," Johnson said. According to Vince Malta, President-Elect, National Association of Realtors (NAR), any future system should op - timize what is working today while minimizing transition risks. "By emphasizing on the explicit government guarantee, regula - tory flexibility, and reasonable regulatory authority, this outline demonstrates a genuine commit- ment to ensuring a future housing finance system that is both safe and vibrant," Malta said. "It is imperative that lawmakers con - sider the need for liquid national mortgage market that is resilient to stress and supports the home- ownership needs of middle-class Americans." He said NAR strongly sup- ported the outline's language to provide an explicit government guarantee for MBS "buttressed by various credit enhancements." "Explicit government backing of these new MBS is required to in - still confidence in potential inves- tors. Without investor confidence, the ability to raise capital and provide liquidity to the secondary mortgage market will be severely limited," Malta said. "As you consider reform, it is important to note that there are many key elements to the current system," said Carrie Hunt, EVP of Government Affairs and General Counsel, National Association of Federally-Insured Credit Unions (NAFCU). "Credit union partner - ships with the GSEs play an important role in their mortgage lending functions." She said technology tools such as Fannie Mae's Desktop Underwriter and Freddie Mac's Loan Prospector provided critical benefits to small lenders and that "access to such technology must be preserved in any new model." Pointing out that NAFCU rec - ognized a number of strengths of the outline, including the require- ment of strong capital standards, a guaranteed cash window for small lenders, the prohibition of volume-based discounts, and the preservation of credit risk transfer transactions, Hunt said they were committed to continuing to work with the Committee as it "consid - ers this proposal so that credit unions are afforded the protec- tions necessary to ensure they can continue to provide their commu- nities with access to credit." "NAFCU strongly supports the establishment of a capital framework for the GSEs and other potential guarantors in a future housing finance system," Hunt said. Speaking on behalf of the Center for Responsible Lending (CRL), Michael D. Calhoun, President, CRL said the consider - able reform over the last 10 years to strengthen the GSEs should be continued, and affordable hous- ing efforts must be expanded. However, he added proposals that would "dramatically alter the housing system would reduce the effectiveness of the system and threaten disruption of the entire housing market." After laying out where housing reform stood at present, Calhoun asked, "how do you best har - ness the necessary government guarantee to further the public mission that the outline intends to accomplish?" He also spoke about how the reform could protect the public mission of protecting tax - payers and the private market. Freddie Mac Moves Toward Long-term Goal Freddie Mac continues to work toward implementing a single security, which will ultimately increase market liquidity. F reddie Mac announced in early April that it completed the exchange of certain eligible Freddie Mac 45-day payment delay Gold Mortgage Participation Certificates (PCs) and Giant PC securities held in its portfolio for Freddie Mac 55-day payment delay, To- Be-Announced (TBA)-eligible Uni - form Mortgage-backed Securities (UMBS) Mirror Certificates. "The successful exchanges of Freddie Mac Gold PCs for UMBS Mirror Certificates by our portfolio marks another important mile - stone in our progress toward the realization of a Single Security," said Mark Hanson, SVP of Securitization for Freddie Mac. "Although this exchange included a rela - tively modest amount of unpaid principal balance in the company's own portfolio, the exchanges demonstrate the Dealer Direct portal's readiness for the planned offer to investors to exchange eli - gible Gold PCs and Giant PCs for corresponding Mirror Certificates." The UMBS is part of the Federal Housing Finance Agency's (FHFA) 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac. The plan includes a strategic goal of developing a new securitization infrastructure for Fannie Mae and Freddie Mac, through Common Securitization Solutions (CSS), a joint venture owned by the GSEs. According to Freddie Mac, investors can expect to begin to exchange in May 2019, through either dealers using Freddie Mac's Dealer Direct portal, or directly with Freddie Mac as facilitated through Tradeweb. The FHFA states "the issuance of UMBS should improve the overall liquid - ity of the Enterprises' securities and help ensure liquidity of the nation's housing finance markets." Freddie Mac noted that the security characteristics of the new 55-day securities will mirror their corresponding 45-day securities, with the new 55-day securities receiving a new prefix, pool num - ber, CUSIP, and issuance date. Additionally, the cash flows of the UMBS, Supers, MBS, or Giant MBS will ultimately be backed by the same loans as the original PC or Giant PC, and Freddie Mac stated that the factor of the 55-day security will match the cur - rent factor of the corresponding eligible 45-day security at the time of exchange. "The successful exchanges of Freddie Mac Gold PCs for UMBS Mirror Certificates by our portfolio marks another important milestone in our progress toward the realization of a Single Security." —Mark Hanson, SVP of Securitization, Freddie Mac

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