Fannie & Freddie Common Securitization Solution
We are encouraged that the Federal Housing Finance Agency (FHFA) has taken towards greater transparency in the securitization market. More specifically, we are encouraged that the Government Sponsored Entities (GSEs) are adapting an event driven open architecture for the implementation and launch of the Common Securitization Solution (CSS). We believe that this framework will become the default standard. As we look to launch and expand our pilot program in 2015, we will be offering a white-label version of our platform to active issuers who desire to centralize their securitization programs.
The Federal Housing Finance Agency (FHFA) has confirmed in its May 13, 2014 Strategic Plan for the Conservatorship of Fannie Mae and Freddie Mac that it will continue its multi-year efforts to build a common securitization Platform. The FHFA has filed the necessary legal paperwork to create the CSS, which is a joint venture between Fannie Mae and Freddie Mac. The aim is to build and operate a common platform for the two GSEs to issue mortgage-backed securities and consolidate some of the functions currently replicated by Fannie and Freddie. Sein believes this is an important milestone as the GSEs and Ginnie Mae now account for approximately 98% of all MBS issuance.
The CSS is part of a renewal project proposed within the Strategic Plan for Enterprise Conservatorships published by FHFA in May 2014, with two main, complementary goals: The replacement of the GSEs’ proprietary infrastructures with a new, more efficient, common model;
The establishment of a new framework that is consistent with multiple states of housing finance reform.
The aims of the CSS are to provide a new, efficient environment to enable policy makers to redesign a more flexible mortgage finance system in the future, and encourage a wider sharing of risk with the entry of private capital. In particular, as stated in FHFA’s report “Building a New Infrastructure for the Secondary Mortgage Market”, the future system needs “an operational mechanism to connect capital market investors to borrowers by bundling mortgages into securities and tracking payments”, together with a specific set of rules: a new, standardized model PSA (Pooling and Servicing Agreement) to address and replace the current shortcomings of the GSEs contractual architectures, by incorporating standardized provisions and best practices, achieving contractual harmonization.
The completion of this new securitization infrastructure could take some years. Nonetheless, the new infrastructure and consequent standardization should provide greater transparency for small-to-medium sized investors and reduce the entry cost. In the words of Stephen Clinton, Freddie Mac’s SVP of conservatorship and corporate initiatives, the CSS will “reduce costs, improve transparency, and lower barriers to entry for private market credit takers”, offering benefits to taxpayers and borrowers and encouraging private investors by providing a higher sense of confidence in the housing market.
To achieve this, the new securitization platform will work on five main modules:
- data visualization
- issuance support
- master servicing operations
- bond administration
In addition, the FHFA intends to broaden the scope of the CSP to include private label securitizations. We are excited by these developments and intend to remain in the forefront of innovation in this area. Specifically, we are happy that the FHFA and the GSEs have approved a licensing agreement through which solution providers like Sein are able to package the loan level and performance data that both Fannie and Freddie have made public. We at Sein anticipate signing the licensing agreement in the near future and incorporating this data into our platform.