Though it would take awhile to build historical data based on the new loan level information that Freddie Mac will be releasing on its fixed- and adjustable-rate PC Gold securities, the changes would have an immediate negative impact on the specified pool market, analysts said.
Freddie Mac recently disclosed the specific loan level information that it will be releasing in the fourth quarter on its newly issued PCs at issuance. The announcement came after Freddie officials last month expressed the intention to expand disclosures on the GSE's single-family PC securities. However, it provided no indication of additional loan-level disclosures for outstanding pools.
UBS analysts said that with the additional loan-level information, "market participants in the specified arena will be able to dissect pools with greater accuracy, comparing new originations and identifying favorable attributes for pay-ups." But the danger is that by making it easier to separate specific loans and differentiate securities, it could adversely affect the TBA sector, reducing market liquidity and creating a significant number of pools with specific attributes. Despite these setbacks, UBS researchers said that the additional loan level disclosures are very positive for the general market as they provide added transparency to the buyside and is particularly helpful in distinguishing between issuers. Currently, the market only has access to quartile data, which "can obfuscate the actual distribution variables such as FICO, LTV and loan size," analysts added.
Deutsche Bank Securities analysts said in a recent report that Freddie's increased ARM securities disclosure will be the most helpful component of the new Freddie program, this is particularly true since Freddie had been lagging Fannie Mae and private label issuers in terms of ARM disclosures. Freddie is still not able to disclose monthly weighted average coupon updates as the GSE's ARM securities reset, putting it at a disadvantage.
Also, Freddie's enhanced disclosure of fixed-rate parameters on a loan-by-loan basis adds no real additional value as analysts already receive much of that info on an aggregate pool basis and by quartiles.
Deutsche Bank researchers use the private label MBS market as an example, where pool-level information has already been widely available and where the market does not trade to that finite level of information. Therefore they conclude that it is unlikely that loan level data is going to further tier the agency market.
Deutsche Bank analysts added that what would be more helpful is Freddie disclosing some new relevant fields - such as a mortgage's documentation level, if points were paid at origination, or the loan's mortgage insurance status.
In a company release, Executive Vice President Patricia Cook, said that through the additional information offered, Freddie officials are hoping that it would help the GSE in its mission to provide liquidity, stability and affordability to home financing. The release also said that Freddie is now working with data providers to offer the loan-level information, which will be available through its website starting in the fourth quarter.
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