SIFMA responded to FHFA’s Request for Information (RFI) on UMBS pooling. SIFMA appreciates the extension of the comment period through January…
January 21, 2020
The Honorable Mark Calabria
Federal Housing Finance Agency
400 7th Street SW, 8th Floor
Washington, D.C., 20219
Re: Request for Input on Enterprise Pooling Practices
The undersigned associations are pleased to respond to the Federal Housing Finance Agency’s (FHFA) Request for Input (RFI) on Uniform Mortgage-Backed Security (UMBS) pooling.1 Together, we represent a wide range of the parties that would be affected by changes to mortgage-backed security (MBS) pooling practices, including loan originators, investors, market makers, and other businesses that rely on continued robust liquidity in the To-Be-Announced (TBA) market and the markets for specified pools and collateralized mortgage obligations (CMOs).
Several of the undersigned are also planning to submit individual comments, but we felt it was important to provide our shared views and concerns on a number of issues. While we appreciate the FHFA’s well-intentioned effort to address liquidity and other concerns in the UMBS market, the RFI includes proposals that could fundamentally change the MBS markets in ways that will have negative consequences for all of our members as well as for mortgage borrowers; those proposals should not be implemented.
While the initial operational transition from separate forms of MBS issuance by Fannie Mae and Freddie Mac (the Enterprises) to the UMBS was relatively smooth, we believe there is room for improvement in TBA market liquidity and that fundamental misalignments that existed prior to the creation of the UMBS have not yet been sufficiently addressed. Unfortunately, we do not believe that the proposals in the RFI will address these issues, and instead may worsen them.
I. The Proposed Approaches in the RFI Will Not Improve the TBA Market and Should be Reconsidered
FHFA’s stated purposes in issuing this RFI are to ensure more uniform cash flows for TBA investors to promote liquidity, while continuing to offer specified pools sought by investors on a limited basis, and to align the Enterprises policies around the actions to be taken when a seller/servicer exhibits prepayment behavior outside acceptable norms. To achieve these goals, the RFI would: (1) mandate that the majority of loans are placed into multi-lender pools; (2) significantly limit the production of specified