The second phase of the plan to have Fannie Mae and Freddie Mac using a common, single mortgage-backed security will be pushed back to the second quarter of 2019, the Federal Housing Finance Agency said Thursday.
Under the FHFA's guidance, the government-sponsored enterprises have been working to develop a common securitization platform that would allow the two mortgage giants to issue uniform mortgage-backed securities. Freddie started using the common security model in November, what was known as Release 1 of the plan. Originally, the second phase — known as Release 2 — allowing both Fannie and Freddie to use the CSP to issue a uniform MBS was projected for next year.
But the implementation was delayed to the following year as a result of the “lessons learned” from Release 1, the FHFA said. The agency had planned to finalize the timetable for the second phase based on how the first phase went. The updated timetable appears intended in part to give market participants 24 months advance notice of the launch and to facilitate more engagement.
Following “an extensive review of lessons learned” from Release 1 and “progress on Release 2 … the anticipated implementation time frame for Release 2 has been delayed from 2018 to the second quarter of 2019,” the agency said in an update released Thursday. “The drivers of this anticipated implementation date include the demonstrated need for additional time for the development, testing, validation of controls, and governance processes necessary to have the highest level of confidence that the implementation will be both smooth and successful.”
The common securitization plan is part of a broader strategic effort to meet the FHFA’s requirements as conservator of Fannie and Freddie while maintaining the flow of mortgage credit.
The concepts of a common security and allowing the mortgage companies to utilize a common securitization platform are key parts of the various housing finance reform proposals that have recently been put forward. Such approaches were included in a reform plan issued by the Mortgage Bankers Association and another offered by mortgage experts Lew Ranieri, Gene Sperling, Mark Zandi, Barry Zigas and Jim Parrot.
In a press release, the FHFA said Freddie is “now using the Data Acceptance, Issuance Support, and Bond Administration modules of the CSP.” With Release 2, both GSEs will be using those modules and issuing a uniform security.
“I am very pleased with the hard work and determination of all those involved who helped make” the Freddie transition “a success and laid the foundation for successful implementation of Release 2,” FHFA Director Mel Watt said in the press release.
“I encourage all market participants to begin moving forward with their preparations to make the changes they will need to accompany implementation of the Single Security Initiative,” Watt added.
The FHFA said after Fannie makes the transition, the joint venture with Freddie — Common Securitization Solutions — will be responsible for the bond administration of 900,000 securities with a principal balance of $4 trillion.
“The CSP and Single Security are ambitious projects,” Watt said.