FHFA recommits to UMBS in response to concerns about new g-fee

Abstract

The Federal Housing Finance Agency is pressing ahead with a controversial guarantee fee that was proposed as part of the Enterprise Capital Regulatory Framework in 2020, but also pledged to not let it undermine single security structures, a subset of the to-be-announced securities market, as some fear it could. "FHFA remains committed to the continued strength and resilience of the Single Security Initiative given the significant improvement in liquidity and stability that this initiative has afforded the TBA market," newly confirmed Director Sandra Thompson said in a comment on the new g-fee. Thompson said she wanted to maintain a dialogue with the industry and keep an eye on how the fee, set to go into effect on July 1, affects the uniform mortgage-backed security structure used in that market. "FHFA will continue to monitor the UMBS and TBA market to ensure UMBS and the related TBA market function as intended and will continue regular engagement with stakeholders," she said. The way the fee may cause disruption may not immediately be apparent because currently the Federal Reserve is a major buyer in the MBS market, artificially stabilizing it. Adding a risk weighting could "Lead to different treatment and actions that would undermine the UMBS market," he said, noting that the association planned to maintain a dialogue with the FHFA."The UMBS is a critical feature for the current and any post-conservatorship secondary market," Mills added "We are gathering market intelligence and communicating regularly with FHFA and the GSEs to ensure a well-functioning UMBS market." Some mortgage executives interpreted the FHFA's statement as mainly an attempt to renew conversation on the UMBS-related g-fee and keep an eye on whether past concerns persist in the current markets and air different views. Some advocates of a more privatized MBS market have wanted to see some of the agency market's advantages reduced but views on whether this would be the optimal way to accomplish that have been mixed.