Sandra L. Thompson
Director
Federal Housing Finance Agency
400 7th Street, SW
Washington, D.C. 20219

Dear Director Thompson,

SIFMA1 writes this letter on behalf of its buy- and sell-side members to express our strong and unified objection to Fannie Mae and Freddie Mac’s (“Enterprises”) recent announcements that, beginning July 1, a 50-basis point charge would be imposed by an Enterprise on all Supers and CMOs that include collateral guaranteed by the non-issuing Enterprise.2 Our members were very surprised to see these announcements that the Enterprises released with no forewarning. We believe that if this charge is allowed to go in to effect there will be severely negative near-term impacts across the various UMBS markets, which will ultimately be borne by the borrowers that rely on these markets to finance their mortgages. Most importantly, market participants have questioned the longer-term future of UMBS and the continuation of the successes that it has achieved since its implementation.

In less than two weeks, Super and CMO markets will be bifurcated with negative, yet unknown in scale consequences for UMBS TBA liquidity. We urgently request that FHFA direct the Enterprises to rescind this action as soon as possible so that the fee is not imposed.3 The Enterprises and FHFA should then discuss with MBS market participants a less disruptive path forward. We suggest reverting the risk weight for cross-GSE exposures to zero, as it was before the enterprise capital framework was revised in December 2020 under your predecessor.4 We stand ready to provide any needed assistance to FHFA.

UMBS History, Core Principles, and Benefits

As you know, the development and implementation of the UMBS and single TBA delivery was a carefully planned, years-long project that involved extensive dialog with originators, investors, housing advocates, and market makers.5 FHFA, the Treasury Department, the Enterprises, and market participants collectively spent thousands of hours discussing trading, operational, and a multitude of other issues before they arrived at the final form of UMBS and related market structures, with a central goal of ensuring the fungibility of the MBS guaranteed by the Enterprises so that liquidity to finance mortgages would be maximized. Additionally, market makers and investors spent significant time and resources educating their clients about the changes UMBS would bring, so that MBS market participants would view UMBS as a positive step and agree that TBA delivery should be shifted to a single contract. This was not an easy task, as UMBS represented a major change to the Enterprises’ MBS markets which had functioned effectively for 30 years. Through much hard work the market grew more comfortable, TBA delivery guidelines were amended, and the UMBS was implemented. Now, market participants
must be able to trust that what was promised to them will be maintained.

 

1 SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital
markets. On behalf of our industry’s one million employees, we advocate on legislation, regulation and business policy affecting retail and
institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to
promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for
industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA).

2 See, e.g., June 14, 2022 notice from Fannie Mae, available here: https://capitalmarkets.fanniemae.com/mortgage-backed-securities/new-feestructure-certain-structured-transactions

3 We have been informed by members that both Enterprises have already begun imposing this fee as of the time of this writing, ahead of the July 1 start date in the announcements.

4 85 FR 82150. This provision is §1240.32(c)(2) of the final rule. We note that in the preamble to the final rule, the FHFA did not substantively address any of the concerns expressed by numerous commenters that the cross-guarantee capital charge could harm UMBS. See, e.g., page 82184.