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Fannie Mae and Freddie Mac began issuing the Uniform Mortgage-Backed Securities (UMBS) on June 3, 2019.
This quarterly report provides market participants additional transparency into a sample of the data FHFA receives and reviews on a monthly basis. The report focuses on alignment of prepayment rates, which continues to be important to the success of UMBS and to the efficiency and liquidity of the secondary mortgage market.
Ex post monitoring of prepayment rates is part of a broader effort to assure investors that cash flows from UMBS will be similar regardless of which Enterprise is the issuer. This report provides insight into how FHFA monitors the consistency of prepayment rates across cohorts of the Enterprises’ TBA-eligible MBS,1 where a cohort consists of those Enterprise TBA-eligible securities with the same coupon, maturity, and loan-origination year and total combined issuance across the Enterprises exceeds $10 billion. A prepayment on a mortgage loan is the amount of principal paid in advance of the loan’s scheduled payments. Full prepayment occurs when a borrower pays off the loan ahead of the scheduled maturity.
Background on UMBS
Issuance of UMBS through the Enterprises’ jointly developed Common Securitization Platform (CSS), fulfilled important elements of FHFA’s
2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac. Forward trading of UMBS began in the “To-Be-Announced” (TBA) market2, on March 12, 2019 with first settlements of the UMBS trades on June 3, 2019. UMBS is issued without regard to which Enterprise is the issuer and has effectively merged the formerly separate MBS markets. UMBS has broadened and enhanced-liquidity in the secondary market for residential mortgages and reduced costs to taxpayers.3
1 To avoid double counting, only first-level securitizations are included in the analysis. Second-level securitizations (Megas, Giants, and Supers) are excluded, with the exception of fastest quartile analyses and Table 2 (Quartile Report). For those exceptions, Freddie Mac multi-lender second-level securitizations traded as a single security are included and the related first-level securitizations are excluded to avoid double counting.
2 The TBA market is a forward market for certain mortgage-backed securities, including those issued by the Enterprises.
An Update on the Structure of the Single Security, May 2015, p.4
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