As your trusted capital markets partner, we strive to assist you in understanding complex market-related topics such as the upcoming Single Security Initiative and info around the MBS’s to be renamed Uniform Mortgage-backed Securities (UMBS).
This important change is scheduled to go live on June 3rd of 2019.
However, the changes will impact trading as early as March of 2019.
To help you be prepared to deal with this important transition, we will summarize the discussions of the September 2018 webinar “The Single Security Initiative Explained“, review the rationale behind the Single Security Initiative (SSI), how the structure of the mortgage industry will (and will not) change, how pooling, trading, and delivery will be affected, and the main preparatory tasks for lenders.
We are excited to present to you this live webinar recording, followed by a comprehensive summary of the topics discussed to help you be ready for upcoming changes!
Video & Slides: The Single Security Initiative Explained Webinar
In this national webinar, we invited MCT’s Director of Analytics, Bill Berliner, to share all the nitty gritty details he has learned about this change since attending the May 2018 Single Security Conference.
We hope you will enjoy viewing the full event. Also available for viewing is the full presentation slide deck. For a summary of the questions answered in the webinar, please read on below after this webinar video.
In this video webinar you will learn about:
- The reasons behind Single Securitization Initiative
- How the structure of the mortgage industry will (and will not) change
- How pooling, trading, and delivery will be affected
- Main preparatory tasks for lenders
You can also download the full presentation slide deck.
Webinar Summary – The Single Security Initiative Explained
In this national webinar that took place in September 2018, Bill Berliner shared his expertise on the Single Security Initiative to imbue confidence in lenders that are seeking to understand how this change will affect their operations.
The information used in this webinar comes from the Single Security Market Adoption Playbook, the SSI conference hosted by Fannie Mae and Freddie Mac in May 2018, and data and trading platforms Bloomberg and Tradeweb.
In this webinar, Mr. Berliner answered the following questions:
- What is the Single Security Initiative?
- What is the Common Securitization Platform?
- What is impacted by the SSI?
- What is the purpose/objective of the SSI?
- How will the MBS Market and trading be affected?
- How will the TBA Market and trading be affected?
- What happens to existing Gold Pools?
- What happens to deliverable and non-deliverable pools?
- What aspects of the transition are yet to be decided?
- What should lenders do to prepare for the SSI?
- What are the potential SSI hiccups to anticipate?
- What is MCT’s role in the transition to the SSI?
In short, Fannie and Freddie will issue Mortgage Backed Securities (MBS)
Mortgage Backed Security - An investment instrument backed by mortgage loans as security. Ownership is evidenced by an undivided interest in a pool of mortgages or trust deeds. Income from the underlying mortgages is used to pay interest and principal on the securities. A MBS is formed by pooling mortgage loans to form a debt instrument or security collateralized by the loan pool. under a single platform without merging their companies. MBS’s will be renamed Uniform Mortgage-backed Securities (UMBS). These new securities will have the characteristics of Fannie Mae pools which have 55 delay days. The change will go live on June 3rd, 2019.
This platform was created as the new host for the single platform, as the old system could not accommodate the update. This platform is being built and managed by a joint venture of Fannie and Freddie.
This initiative only impacts conventional fixed-rate MBS. Conventional ARMs and all Ginnie Mae pools are unaffected.
This initiative is meant to address the persistent difference in market pricing between MBS issued by Fannie and Freddie. In effect, this update creates an “even playing field” for Fannie and Freddie so that they can receive the same proceeds for the sale of their securities. For more details about this narrative and why this initiative is so complex, please view the webinar or download the slide deck.
New pools will be created and traded under the UMBS name. Both Freddie and Fannie will each issue UMBS and new UMBS pools will adopt current Fannie naming conventions.
Trading will begin transitioning to the UMBS platform in March 2019 and the trading in UMBS will commence after March notification for third-month TBAs. Another change that will be observed is an update of the trading screen layout. For prior and post transition trading screen images, please view the webinar or download the slide deck.
Gold pools will not be deliverable againsts UMBS TBAs. Only pools with 55 delay days will be deliverable into UMBS TBAs.
New UMBS pools, existing Fannie pools, and Freddie pools will be delivered againsts UMBS TBAs. Deliverable (TBA-eligible) pools will use existing Fannie Mae prefixes. Non-deliverable pools will have slightly different conventions from the current method. Both Freddie and Fannie UMBS will use similar pool numbering.
Some aspects of the transition still need to be addressed by regulators and government such as the duration that Freddie Gold TBAs will continue trading after the go-live date, how traders will be able to directly roll Golds into UMBS TBAs, if “legacy” Gold pools will continue to trade, whether the exchange compensation is taxable income, and how index providers will adjust the fixed income indices.
Lenders should be aware that TBA changes impact risk management, accounting (financial and regulatory), and make sure that provisions are made to calculate and/or access the correct durations and pricing for the UMBS on the go-live date. Lenders that create pools should be aware of the changes and can create and deliver the new UMBS securities without disruptions. Lenders should be flexible and prepared to deal with issues as they arise. Lastly, Lenders should make sure that all broker/dealer counterparties are aware of the big changes coming to the MBS market.
Some potential hiccups we can anticipate with this change are custodial banks not clearing pools correctly, a potential fragmented MBS market impacting liquidity if enough investors demand Fannie- or Freddie-only pools, disrupted trade assignments, and the potential for UMBS TBAs to not be accounted for correctly or not assigned correct durations.
MCT will be involved with the testing leading up to the rollout beginning in Q4 2018 and will be ready when the CSP goes live. MCT’s staff is available to discuss the initiative and how to prepare prior to the go-live date.
Contact Us to Learn More About the SSI
At MCT, we stay ahead of the most cutting edge information within the secondary market to ensure our clients are prepared to tackle any upcoming market changes with confidence. We hope that the insights in this article will help you to increase confidence in handling the changes associated with the Single Security Initiative.
Contact us if you have any questions, if you would like to suggest a webinar topic, or if you would like to learn more about our partners who presented on the webinar panel. Enjoy related articles below.
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