Letters

Request for Input on Enterprise Pooling Practices

Summary

SIFMA responded to FHFA’s Request for Information (RFI) on UMBS pooling. SIFMA appreciates the extension of the comment period through January 2020 to provide more time for a thoughtful response to the proposals in the RFI. This was important because the RFI contains proposals that could fundamentally change how investors, market makers, and originators are able to access conventional MBS markets.

SIFMA believes that the multi-lender pooling proposal in the RFI, while well-intentioned, would not have its intended effect. We believe that it would be significantly harmful to liquidity in each of the conventional MBS markets – TBA, specified pool, and CMO – and to their investor, originator, and market maker participants, and consequently to mortgage borrowers. SIFMA members believe very strongly that FHFA should abandon the multi-lender pooling proposal to avoid this disruption and harm, and instead pursue more appropriate and effective avenues to enhance liquidity in these important markets.

See, also: Joint Trades Input on Enterprise Pooling Practices

PDF

Submitted To

FHFA

Submitted By

SIFMA

Committee

Securitization Committee

Date

21

January

2020

Excerpt

Federal Housing Finance Agency
Division of Conservatorship
400 7th Street SW, 8th floor, Washington, D.C., 20219

Re: Request for Input on Enterprise Pooling Practices

Dear Madam or Sir,

SIFMA1 is pleased to respond to FHFA’s Request for Information (RFI) on UMBS pooling. SIFMA also appreciates the extension of the comment period through January 2020 to provide more time for a thoughtful response to the proposals in the RFI. This was important because the RFI contains proposals that could fundamentally change how investors, market makers, and originators are able to access conventional MBS markets. Accordingly, we thank FHFA for seeking input from market participants on these issues. Our response is primarily focused on the views of our members active in the MBS trading markets.

The UMBS structure has been in place for less than one year, and while our members broadly agree that the operational transition was fairly smooth, we have heard a variety of views on the impacts of UMBS. What is clear is that TBA liquidity has not been optimal over the last year or more and could be improved. SIFMA members agree that volumes of issuance and trading in specified pools have increased and many believe that TBA liquidity has decreased. There are varying views, however, on how much of this is related to UMBS itself (through worsening the deliverable among other things), how much is related to high-WAC pools that were produced in 2018/2019, how much is related to a rally in rates or other factors, and how much is related to a combination of these factors. In any case, we appreciate that FHFA has a focus on liquidity in this essential market that drives mortgage finance. The most important of the RFI’s proposals regards enhancement of multi-lending pooling volumes and is described as follows:

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