The ASF recently released a white paper entitled "Discussion of a Proposed Single Agency Security" that outlines the issues to be addressed in effectively merging the securities markets of Fannie Mae and Freddie Mac to reduce "TBA market inefficiencies." This column will discuss the implications of unresolved issues raised by the report.

The underlying objective of creating a Single Agency Security (SAS) is to mitigate the pricing disadvantage that severely hinders Freddie Mac's ability to price and securitize loans. While they should trade at a premium to Fannies (due to the reduced payment delay), Freddie Gold pools have traded at an increasingly large concession to Fannies. As the paper discusses, this translates into a loan pricing disadvantage that has pushed the bulk of new originations to Fannie, forcing Freddie to offer lower guarantee fees and other concessions in order to remain competitive.

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