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Th e M Rep o RT | 57 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET The laTesT FHFa issues Update on single security initiative The modifications are rooted in responses to the agency's call for public input. t he Federal Housing Finance Agency (FHFA) recently issued an update to the mortgage-backed security (MBS) structure initiative, also known as Single Security. The new changes are based on 23 responses to a "Request for Public Input: Proposed Single Security Structure (RFI)" released in Au- gust 2014 by the FHFA. The Single Security initiative is still in the works for approval and has not been enacted yet. "FHFA's update should give everyone a sense of how the Single Security will be developed and the solid progress that has been made over the past year," said Dave Lowman, EVP of single- family business at Freddie Mac. "We strongly believe in the Single Security's potential for expand- ing liquidity in the TBA [to be announced] market, lowering housing finance costs, and making the housing finance system more competitive and resilient." The 2014 Conservatorship Strategic Plan for Fannie Mae and Freddie Mac consisted of creating a single MBS that the enterprises could provide to finance fixed-rate mortgage loans backed by one to four single-family unit proper- ties. According to the FHFA, the initial goal was to assist in build- ing a Common Securitization Platform (CSP) and support the statutory obligation to ensure the liquidity of the nation's housing finance markets issued by the FHFA. Taxpayers would also not have to suffer the cost of subsidiz- ing Freddie Mac's securitization of single-family mortgage loans with the Single Security initiative. "Today's Single Security Update is an important milestone, pro- viding additional details on the features of the Single Security and the strong progress made to date by Fannie Mae, Freddie Mac, and Common Securitization Solutions (CSS) on implementation plan- ning," said Andrew Bon Salle, EVP of single-family business at Fannie Mae. "We will continue to work with FHFA, Freddie Mac, and CSS to ensure we transition to the Single Security in a safe and sound manner." Changes to Single Security Initiative Structure: • Each Enterprise will issue and guarantee first-level Single Securities backed by mortgage loans that the Enterprise has acquired. The Enterprises will not cross-guarantee each other's first-level securities. The Federal Home Loan Banks will not be an eligible issuer of Single Securities. • The key features of the new Single Security will be the same as those of the current Fannie Mae MBS, including a payment delay of 55 days. • First-level Single Securities will finance fixed-rate mortgage loans now eligible for financing through the TBA market. • Lenders will continue to be able to contribute mortgage loans to multiple-lender pools. • Each Enterprise will be able to issue second-level Single Securities (re-securitizations) backed by first- or second- level securities issued by either Enterprise. • The loan- and security-level disclosures for Single Securities will closely resemble those of Freddie Mac PCs. • Current Enterprise policies and practices related to the removal of mortgage loans from securi- ties (buyouts) are substantially aligned today and will be gen- erally similar and aligned for purposes of the Single Security. • Freddie Mac will offer inves- tors the option to exchange legacy PCs for comparable Single Securities backed by the same mortgage loans and will compensate investors for the cost of the change in the pay- ment delay. Freddie mac Outlook Predicts Higher interest rates Would-be buyers could experience periods of sticker shock for the remainder of 2015. F reddie Mac released its U.S. Economic and Housing Market Outlook for May, revealing that low mortgage rates kept afford- ability high in the first quarter of this year for buyers, but housing markets will probably see interest rates increase for the rest of the year. The outlook credits market participants attempting to antici- pate the Federal Reserve's timing around rising short-term interest rates will likely be the cause of the increase. "For the remainder of this year, we're likely to continue to see these mortgage rate swings as mar- ket participants try to anticipate Fed timing around rising short- term interest rates," said Len Kiefer, deputy chief economist, Freddie Mac. "Unfortunately, perspective homebuyers may experience bouts of affordability shock in many housing markets." Outlook Forecast: • Due to weak first quarter data, the forecast for economic growth for 2015 dropped from 2.6 percent to 2.3 percent. • With tight for-sale inventories, house price growth continues to beat expectations. Expect 2015 house price growth to be 4.5 percent, revised up from 4 percent in April. • Due to strong refinance activity through the first four months of the year, the forecast for 2015 mortgage originations was revised up to $1.35 billion. Due to low mortgage rates and strong refinance volume, the forecast for the refinance share of originations in 2015 has been boosted to 43 percent. "The labor market has added 5 million additional jobs, the unemployment rate is significantly lower, and housing markets are generally in much better condition than two years ago," Kiefer said. "So far it's been low mortgage rates that have helped to keep home- buyer affordability strong in the face of rising house prices, while income growth remains stagnant."