To address investor preference for Fannie Mae mortgage-backed securities over Freddie Mac bonds, the GSE regulator could create a single instrument that includes loans guaranteed by both, according to speakers at an American Securitization Forum in Washington.
The Federal Housing Finance Agency has already set a long-term goal of merging Fannie and Freddie’s securitization platforms.
But Bank of America senior vice president Matthew Tomiak stressed that the FHFA can take more immediate steps to address the divergent pricing and create a single GSE MBS instrument.
The spread between Fannie and Freddie MBS has been widening and lenders are selling more of their loans to Fannie because of the pricing advantage. (Ironically, Freddie has suffered smaller overall losses than Fannie.)
“Unfortunately, it is trapped in a spiral and compounding itself…due to the lack of liquidity in the Freddie space as well as the prepayment differential between the two,” Tomiak told the ASF audience late Monday afternoon.
Hunton & Williams attorney Amy Williams said the FHFA could create a single-agency MBS under Fannie and Freddie’s charter without seeking congressional approval.
The securitization attorney said that once a single-agency MBS instrument is created and trading, even mortgages originated in 2011 and 2010 could be converted into a single-agency MBS. “I think those things are doable within the charters,” Williams said.