​What Needs to Happen 

• For implementation to succeed, both Enterprises must be ready to issue the UMBS, and market participants must be ready and willing to invest in and trade them. 
• Investors who might choose to exchange their Freddie Mac legacy securities need well-functioning pathways.  
• The exchange of legacy Freddie Mac securities for UMBS requires guidance by the Securities and Exchange Commission (SEC) on accounting matters and a ruling by the Internal Revenue Service (IRS) on tax treatment.  
• Certain investors need to understand how tax incentives related to the diversification of their investments can be maintained, and which of their investment guidelines must be revised.
• Investors require assurance that today's close alignment of Fannie Mae and Freddie Mac security prepayments and cash flows will continue when both Enterprises issue the UMBS.   
• And finally, industry guidelines related to the TBA markets need to be updated.

What Has Happened

This all sounds like a tall order, and it is.  Happily, we can report progress on many fronts:

• Development and testing of the Common Securitization Platform (CSP) has been underway since 2012, and is well-advanced.  Freddie Mac has been using the CSP for issuance of its current TBA securities since November 2016 and preparations for Fannie Mae to issue UMBS via the CSP are also underway, with ongoing intensive testing that involves both Enterprises and their joint venture, Common Securitization Solutions (CSS).  FHFA has posted a Timeline that provides an overview of much of the work accomplished.
• Information about the operational pathways to execute a smooth exchange of legacy Freddie Mac securities has become clearer, with Freddie Mac most recently announcing an agreement with Tradeweb to provide certain of the exchange services.  
• The SEC has opined that the exchange of Freddie Mac legacy securities for UMBS will be deemed a minor modification.
• The IRS has issued a ruling stating that the exchange of Freddie Mac legacy securities for UMBS will not be a taxable exchange of property.
• The IRS has also issued a ruling under Section 817(h) on how it will treat a subset of investments (mainly annuity contracts) in UMBS so that investors for whom this is relevant can continue to meet the IRS investment diversification test.
• FHFA has begun posting quarterly Prepayment Monitoring Reports to keep market participants apprised of important indicators relating to the behavior of each Enterprise's TBA-eligible mortgage-backed securities.  Plans to provide for ongoing industry engagement in the monitoring of prepayments and policy alignment are underway.
• FHFA issued a Notice of Proposed Rulemaking that would strengthen requirements for the Enterprises to maintain policies that promote aligned investor cash flows. 
• Fannie Mae and Freddie Mac held a conference in May focusing on industry readiness and have produced a number of publicly available materials for stakeholders preparing for UMBS implementation.  The Enterprises will continue their outreach to stakeholders leading up to the June 3, 2019 UMBS implementation date.

What remains to be done?

• A logical follow-on to market participants gaining confidence in the tax and regulatory framework associated with the transition to UMBS will be updating of the TBA Market's Good Delivery Guidelines. 
• Testing, Testing, Testing.  No project of this scope and scale should go live without full and complete operational readiness established.  End-to-end testing helps to ensure that all essential components will operate as anticipated.  Testing by the Enterprises, CSS and industry members is underway and will continue at an intensive pace over the next several months.  

FHFA looks forward to working with staff at Fannie Mae, Freddie Mac, and CSS – as well as with industry stakeholders – to complete the necessary work to launch the UMBS on June 3, 2019. ​​